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ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
Understanding TCS rate on foreign remittance involves recognizing that a tax is collected at the source when transferring money abroad. This system helps the government track and regulate international fund transfers, ensuring tax compliance.
If you’ve ever tried sending money abroad, you might have come across something called foreign remittance TCS. It sounds a bit technical, but it’s a concept that’s becoming more relevant for many people who send money overseas for various reasons, such as education, travel, or supporting family members.
TCS stands for Tax Collected at Source. It’s a tax mechanism where the seller collects tax from the buyer at the time of sale. In the context of foreign remittance TCS, it is about collecting tax when you send money outside your home country.
Tax Collected at Source (TCS) applies when you send money abroad. Before transferring your funds overseas, the bank or remittance service deducts this tax. Starting October 1, 2023, if you send more than 7 lakh rupees in a year, a 20% TCS rate will be applied to the amount above that threshold. However, if the money is for medical treatment or education, it’s exempt from TCS.
Knowing when TCS kicks in for international transfers is crucial for financial planning. With a bit of knowledge, Indian residents can navigate how TCS affects their remittances and manage their finances more effectively.
Here are the situations where the new tax rate on sending money abroad from India will apply:
If you are sending money abroad for educational expenses, you’re exempt from TCS for amounts up to ₹7 lakh. For transactions above this threshold, a 0.5% TCS applies if the funds come from a loan.
If you’re using other income sources, a 5% TCS applies to amounts over ₹7 lakh. If you can’t prove the money is for educational purposes, the TCS rate jumps to 20%.
The TCS rate also increases if you don’t submit your PAN card. For education loans above the ₹7 lakh threshold, the TCS rate goes up to 5%, and for other income sources, it increases to 10%.
Additionally, foreign remittances TCS up to ₹7 lakh for medical expenses are exempt from TCS, with a 0.5% TCS rate on amounts exceeding this threshold.
Non-resident Indians (NRIs) can transfer up to ₹1 million from India to the USA without incurring any tax on the transaction. According to Section 206C(1G) of the Income Tax Act, TCS isn’t applicable when NRIs move money from their NRO to their NRE account.
This means NRIs can remit their income earned in India, such as salary, dividends, business profits, and rent, through their NRO accounts. However, these types of transactions do require special approval from the RBI.
There’s no way to completely avoid tax when transferring money from the USA to India. Under American laws, you can send up to $14,000 without any issues, but anything beyond that will be subject to gift taxes.
The higher tax rate for foreign remittances in India can make sending money abroad costlier. However, there are ways to reduce your overall taxable income. When TCS (Tax Collected at Source) applies, banks collect this tax. You can adjust your total TCS amount based on your tax liability.
For example, if you remit ₹5 lakh to a relative abroad, a TCS of ₹1 lakh will be collected. When filing your income tax returns, if you have a tax liability of ₹2.5 lakh, you can reduce it by the TCS amount paid. This means your net tax liability would be ₹1.5 lakh. Banks usually provide a TCS certificate at the time of deduction, which you can use to claim TCS refunds when filing your returns.
If you don’t have taxable income, you can claim a refund for the TCS amount deducted. Additionally, if your total tax liability is less than the TCS amount, you can also claim a refund for the difference.
TCS for foreign remittances can add up to a significant expense, but there are ways to reduce this tax burden. First, check if the transfer is for medical treatment or education since these are exempt from the higher TCS rate. Second, consider scheduling your remittances across different financial years to stay below the ₹7 lakh annual threshold. Finally, remember that TCS counts as a credit toward your overall income tax. Any excess amount can be claimed as a refund.
With some strategic planning, you can better manage your outflows and make the most of your tax credits to minimize the impact of TCS on your remittances.
1
The entity facilitating the remittance, such as banks or remittance services, is responsible for collecting TCS for foreign remittances.
2
Starting October 1, 2023, the TCS rate for foreign remittances above 7 lakh rupees annually is 20% on the amount exceeding this threshold.
3
No, TCS does not apply to medical or education remittances. The Tax Collected at Source applies to foreign remittances under the Liberalised Remittance Scheme (LRS) that exceed a certain threshold.
4
The TCS amount is calculated as a percentage of the remittance amount that exceeds the 7 lakh rupee annual threshold. For example, if you remit 8 lakh rupees, TCS will be applied to 1 lakh rupees.
5
Yes, TCS for foreign remittance can be claimed as a tax credit against your overall income tax dues. Any excess amount can be claimed as a refund.
6
You will need to provide details of the remittance transaction, including the amount, purpose, and recipient details, as well as proof of the TCS collected by the remitting entity.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
