For Indian residents, sending money abroad under the Liberalised Remittance Scheme (LRS) is a common practice, but it comes with several costs. Beyond transfer fees and currency conversion markups, you may have heard about Tax Collected at Source (TCS). This often leads to a common question, particularly from freelancers and those with foreign income: “Do I really have to pay a 20% tax on my foreign remittances?”
The short answer is: not necessarily. TCS is not an extra fee but an advance tax payment that you can claim back when you file your income tax returns. It is collected only when your total remittances exceed a specific threshold. Let’s break down how this works.
What is TCS on Foreign Remittance?
Tax Collected at Source (TCS) on foreign remittances is a percentage withheld by your bank or money transfer service when you send money abroad under the Liberalised Remittance Scheme (LRS). It’s not an extra fee: it’s an advance tax payment that you can adjust against your income tax when you file your returns.
Under LRS, any Indian resident can send up to USD 250,000 abroad per financial year for permitted purposes such as education, travel, medical treatment, or investments
Understanding the TCS Rates and Thresholds
As of the 2025 Budget update, the threshold for TCS on most LRS remittances has been increased to INR 10 lakh. The rate of TCS depends on the purpose of your transfer.
Here are the TCS rates for foreign remittances under the LRS:
| Outward Remittance Purpose | TCS Rates |
| Education, using a loan from a specified financial institution | 0% |
| Education or Medical Treatment, other than with a loan | 5% on amounts above INR 10,00,000 |
| Overseas Tour Program Purchase | 5% on amounts up to INR 10,00,000; 20% on amounts above INR 10,00,000 |
| Other Purposes (including investments, maintenance of relatives, and gifts) | 20% on amounts above INR 10,00,000 |
This means that the 20% rate you may have heard about is applicable only for “other purposes,” such as personal gifts or investments, and only on the amount that exceeds INR 10 lakh in a financial year.
How TCS is Collected and Claimed
Your bank or service provider keeps a record of all your foreign remittances. Once your total transfers for the financial year cross the INR 10 lakh threshold for a specific purpose, the applicable TCS amount is automatically debited from your account at the time of the transfer.
How to check for TCS: You can track the TCS that has been collected through a few key documents:
- Form 27D: This is a certificate issued by your authorized dealer (bank or service provider) as proof that TCS has been collected and deposited.
- Form 26AS: This tax credit statement on the Income Tax e-filing portal provides a detailed summary of all TDS and TCS amounts deducted against your Permanent Account Number (PAN).
- Annual Information Statement (AIS): This is another statement on the e-filing portal that helps you confirm the TCS deducted from your transfers.
How to claim a TCS refund: The TCS amount collected from you is not a final expense. It is a tax credit that you can use to offset your total tax liability when you file your Income Tax Return (ITR). If the total amount of TCS deducted is more than your tax liability for the year, you can claim a refund for the excess amount.
To claim the refund, you must:
- Ensure you have received Form 27D from your service provider.
- Verify that the amounts on Form 27D are correctly reflected on your Form 26AS.
- Include the TCS amount in the designated section when filing your ITR.
- The Income Tax Department will then process your return and issue a refund if you are eligible.
Strategies to Manage TCS on Foreign Remittances
While you cannot refuse to pay TCS, you can manage it effectively.
- Mind the Threshold: The simplest way to avoid TCS is to ensure your total foreign remittances for a given purpose do not exceed INR 10 lakh in a financial year.
- Use a Loan for Education: If you are a student, using a loan from a specified financial institution for your education can reduce the TCS rate to 0%.
- File Your Returns: Even if TCS is deducted, remember that it is a tax credit. By filing your ITR accurately, you can claim a refund for any amount that exceeds your tax liability.
- Understand Your Purpose: Be aware of the purpose code you use for your transfers, as it directly affects the TCS rate. For example, remittances for medical treatment have a lower rate than those for general investments.
It is also important to note that TCS only applies to Indian residents. Non-Resident Indians (NRIs) who are repatriating funds from their NRE accounts are not required to pay TCS.
Conclusion
Freelancers only pay 20% TCS if their outgoing foreign remittances for “other purposes” exceed ₹10 lakh in a year. Receiving payments from overseas clients is not subject to TCS. If you do get charged, remember it’s not lost money; you can claim it back when filing your taxes.
Optimize Your International Payments with BRISKPE
While understanding tax rules is essential, managing the actual cost of your transfers is equally important. Briskpe provides a seamless platform for sending money abroad, offering transparent pricing and competitive exchange rates. By using a service that is both cost-effective and efficient, you can take control of your remittance expenses and make the most of your foreign income.
Take the next step in optimizing your international payments. Learn how BRISKPE can make your transfers simpler and more transparent. Visit briskpe.com to get started.
Frequently Asked Questions
1. Can I refuse to pay TCS on money sent abroad? No, you cannot. Your transfer provider is mandated by the Income Tax Act to collect TCS once your total remittances for the year exceed the threshold.
2. Will the TCS be reversed if a transaction is canceled? Generally, if a transaction is reversed on the same day, the bank will refund the TCS. If the reversal happens on a later date, you will need to claim the TCS refund when filing your ITR.
