# TCS on LRS: The 20% Surprise Most Foreign Remitters Don't Plan For

If aap kabhi foreign trip lete ho, bachhe ko videshi padhaai ke liye paise bhejte ho, ya foreign investment karte ho — Indian tax department aapse pehle hi 20% TCS wasul leti hai. Yeh Tax Collected at Source under Section 206C(1G) kehlata hai.

Good news — yeh refundable hai. But agar aap planning nahi karte, your travel/education budget se ₹2 lakh+ upfront block ho jata hai.

Aaj is article me CA guide:

• Section 206C(1G) kya hai aur kab apply hota hai
• New rates for Tax Year 2026-27 and how they compare with FY 2025-26
• From 1 April 2026 kya changes aa rahe (Finance Act 2026)
• Credit card exemption rule
• Claim refund process

# 🎯 What Is LRS (Liberalised Remittance Scheme)?

LRS = RBI's framework allowing resident Indians to send money abroad up to USD 2,50,000 per financial year without RBI approval.

# Permitted Uses Under LRS:

• Education abroad (tuition + living)
• Medical treatment abroad
• Travel and tourism
• Gifts to relatives abroad
• Investment in foreign stocks/funds/properties
• Maintenance of relatives abroad
• Donations to foreign institutions

# Not Permitted Under LRS:

• Remittance for margin/forex trading
• Lottery/gambling activities
• Investment in PFCEs in non-cooperative jurisdictions
• Capital account transactions prohibited under FEMA

# 💰 TCS Rates for FY 2025-26 (Finance Act 2025) — for comparison

# Threshold: ₹10 Lakh per Financial Year (raised from ₹7L)

💡 Key change in Budget 2025 (effective 1 April 2025): Threshold raised from ₹7L to ₹10L. For Tax Year 2026-27 rates, see the Finance Act 2026 table below — the examples in this section use FY 2025-26 rates.

# Examples

Example 1: Family Holiday to Europe (Tour Package)

• Buy package worth ₹8 lakh via Indian tour operator
• TCS rate: 5% (on entire amount, tour package has no LRS threshold)
• TCS collected: ₹40,000
• Above ₹10 lakh of tour packages in the year, the rate went to 20% (FY 2025-26). From 1 April 2026 it is a flat 2% — ₹16,000 on the same ₹8 lakh

Example 2: Son's MS Education in USA

• Annual tuition + living: ₹35 lakh per year
• TCS rate: 5% (education without loan)
• TCS on excess above ₹10L = 5% × ₹25L = ₹1,25,000

Example 3: Investment in US Stocks

• Transfer ₹15 lakh to Interactive Brokers account
• TCS rate: 20% (other purpose)
• TCS = 20% × ₹5L (excess above ₹10L) = ₹1,00,000

Example 4: Same Investment via Education Loan

• ₹15L investment, ₹5L from education loan u/s 80E
• For the loan portion (if applicable to education): 0.5%
• For investment portion: 20%

# 🔄 From 1 April 2026 — Finance Act 2026 Changes

Per Finance Act 2026, Section 394 of the Income-tax Act 2025 (which replaces Section 206C, including 206C(1G)):

The ₹10 lakh threshold is per individual per year across LRS purposes (tour packages aside). Travel paid outside a tour package — for example hotels booked directly — is not a separate 'travel' category; confirm with your bank how it classifies the remittance. A higher rate applies if your PAN is inoperative.

💡 Big relief: Education, medical and tour-package TCS cut to 2%; loan-funded education now nil. Investment/gift TCS unchanged at 20%.

# 📋 Compliance & Documentation

# When You Make LRS Remittance:

1. Bank collects TCS at the time of payment
2. Self-declaration form (Form A2) — Purpose of remittance
3. PAN mandatory — Higher TCS u/s 206CC if no PAN
4. TCS reflects in 26AS / AIS within 30-60 days
5. You claim TCS as credit in ITR (Schedule TCS)

# Tracking Your LRS Limit:

• Banks track cumulative ₹10L per PAN per FY across all banks
• Excess triggers TCS at higher rate
• For overseas tour packages, separate logic (no LRS threshold)

# 🚫 What's NOT Subject to TCS u/s 206C(1G)

# International Credit Card Spends (CURRENT EXEMPTION):

• As of June 2023, Government postponed inclusion of int'l credit cards in LRS
• So credit card spends abroad = NO TCS
• HUGE benefit for frequent travelers — use credit cards over forex cards

💡 Pro tip: Forex-card loads and remittances count towards your ₹10 lakh LRS limit for the year; international credit card spends abroad currently do not attract TCS. Buying a tour package, however, attracts 2% TCS from the first rupee from 1 April 2026.

# NRI Remittances:

• Section 206C(1G) does NOT apply to NRIs
• NRI sending money out of India via NRO → No TCS

# Business/Corporate Remittances:

• LRS is for INDIVIDUAL residents
• Corporate forex remittances under different FEMA framework
• No 206C(1G) on company remittances

# TDS Already Deducted:

• If TDS deducted on the underlying transaction, no double TCS

# 🎯 Real Tax Scenarios

# Scenario 1: Son Going to Australia for MS

Mr. Sharma sends ₹25 lakh to son's tuition abroad in FY 2025-26.

Without education loan:

• TCS: 5% × (₹25L - ₹10L) = ₹75,000
• Refund possible in ITR if total tax < TCS

With education loan u/s 80E:

• TCS: 0.5% × (₹25L - ₹10L) = ₹7,500
• HUGE saving via education loan structuring

# Scenario 2: Foreign Stock Investment

Ms. Priya invests ₹30 lakh in US stocks via international broker.

• TCS: 20% × (₹30L - ₹10L) = ₹4,00,000
• Money blocked till ITR refund
• Plan: Spread across 2 FYs (₹15L + ₹15L) → TCS = 20% × ₹5L = ₹1L × 2 = ₹2L (vs ₹4L)

# Scenario 3: Family Europe Tour

Family of 4 books package ₹6 lakh through Indian tour operator.

• TCS: 5% × ₹6L = ₹30,000 (tour package, on entire amount)
• Reduces from FY 26-27 (post Apr 2026) to 2% = ₹12,000

# Scenario 4: Medical Treatment Abroad

Parent's heart surgery in Singapore: ₹40 lakh.

• TCS at 5% on excess above ₹10L = ₹1,50,000 in FY 25-26
• From Apr 2026 onwards: 2% on excess = ₹60,000

# 📝 ITR Reporting & Refund Process

# Step 1: Verify TCS in 26AS

• Login to incometax.gov.in
• Services → View Form 26AS
• Check TCS section for LRS entries

# Step 2: Claim in ITR

• ITR-1/2/3 → Schedule TDS/TCS
• Enter: - Collector's TAN (bank) - Section: 206C - Amount of TCS claimed

# Step 3: Refund Processing

• If TCS > tax liability: refund credited to bank
• Typically 30-60 days after ITR processing
• Track via 'View Returns / Forms' on portal

# TCS Set-off Order:

TCS first set off against:

1. Tax due
2. Then refunded if surplus

# 🚨 Common Mistakes

# 1. Using Forex Card Instead of Credit Card

Mistake: Forex card spends → LRS → TCS
Better: International credit card → No LRS → No TCS

# 2. Not Tracking Cumulative LRS

Mistake: Multiple bank transactions exceeding ₹10L collectively
Fix: Calculate cumulative across all banks; pre-plan to stay within limit

# 3. Not Claiming TCS Refund

Mistake: TCS deducted but ITR not filed (assuming "below taxable limit")
Fix: File ITR even with low income to claim TCS refund

# 4. Wrong Purpose Declaration

Mistake: Declaring "investment" for what was actually education
Result: 20% TCS instead of 5%
Fix: Correct A2 form with bank, get amended Form 15CB if needed

# 5. Splitting Across Spouses Without Genuine Use

Mistake: ₹20L investment split as ₹10L husband + ₹10L wife to avoid TCS
Caveat: Genuine if both invest in their names; sham if money flows through

# 📜 IT Act 2025 Mapping

• Section 206C(1G) IT Act 1961 → Section 394 IT Act 2025 (TCS)
• Substantive rules unchanged till 31 March 2026
• New rates from 1 April 2026 per Finance Act 2026

# 🚀 Pro Tips

# 1. Time Your Big Remittances

• Plan investments/education spends across FYs (₹10L per year tax-free)
• For tour packages, lower trip amount or split bookings

# 2. Use Credit Cards Strategically

• Up to international credit card limit (often ₹5-10L)
• Convert to EMI for cash flow management
• ZERO TCS on credit card spend abroad

# 3. Education Loan = Tax Saver

• 0.5% TCS vs 5% TCS = 10x lower
• Plus interest paid is deductible u/s 80E (old regime, with no upper cap)
• Education loan structuring saves massive money

# 4. Document Purpose Clearly

• Bank's A2 form is critical
• Wrong purpose declaration creates compliance trouble
• Get CA review for high-value remittances

# 5. NRI Status Plan for Frequent Senders

• If you stay abroad 182+ days, become NRI
• NRIs not subject to 206C(1G)
• Big savings for frequent remitters

# 🧮 Calculator Reference

Use our LRS TCS Calculator — updated for the rates effective 1 April 2026 — or:

• Income Tax Calculator — Set off TCS against tax

# 📚 References

• Income Tax Act 1961: Section 206C(1G), 206CC
• Finance Act 2024: Threshold raised to ₹10L
• Finance Act 2026: Rate reductions for travel/medical to 2%
• RBI LRS Master Direction: USD 2,50,000 annual limit
• CBDT Circular: PAN mandatory for LRS

# Author

CA Prabhakar Kumar has advised 200+ families on foreign education and investment remittances at Prabhakar Kumar & Co., Pune. Cumulative TCS refunds processed: ₹2 Cr+.

For LRS planning and TCS refund, WhatsApp +91 72176 34981.

Written by

Prabhakar Kumar

Chartered Accountant (ICAI, Nov 2019)

Chartered Accountant (FCA, ICAI) and founder of VittSphere Technologies. Writes on Indian taxation, capital gains, GST and personal finance.