The tax collected at source (TCS) on remitting money abroad under a liberalized remittance scheme (LRS)

What is TCS? –

Tax Collected at source is the excess amount collected in the form of tax by the seller of goods from the buyer at the time of selling of goods over and above the sale price. Collected Tax then remitted to the government value.

Is TCS applicable on foreign remittances? – Yes, as per section 206C(IG) of the Income Tax Act, 5% TCS is applicable on sending money out of India for more than Rs.7 lakhs in a financial year under the Liberalised Remittance Scheme of RBI. In the absence of Aadhaar or PAN while remitting money abroad, 10% TCS is charged by authorized dealers. This rule has been affected since Oct 1, 2020.

Are different overseas transactions eligible for TCS? – All permitted current & capital account transactions for individuals under LRS will attract TCS of 5% if the remittance amount is equal to or more than 7 lac rupees. All such remittances on which TCS is applicable are detailed below:

1. Current Account Remittances:

• Money sent for overseas education
• Money sent for Gifts & Donations
• Money sent for medical treatment abroad
• Money sent for family maintenance
• Money loaded & reloaded in travel card (Forex Card)

2. Capital Account Remittances:

• Loan to relatives
• Investment in overseas shares & mutual funds
• Investment in properties abroad

Please note that TCS(tax collected at source) at only 0.50% will be applicable for money sent for education purposes out of education loans taken from any financial institute. For example, if money remitted is Rs. 10 lacs out of an education loan taken from the bank, then TCS will be applicable at 0.50% on Rs. 3 lacs (Up to Rs. 7 Lacs TCS is not applicable) which comes to Rs. 1500/-.

Please also note that a limit of Rs. 7 lacs is for the entire financial year. For example, a person sends CAD 10000 (Rs. 6 Lacs at a conversion rate of Rs. 60 per CAD) from India to his son living in Canada on 05.04.2023 and sends CAD 10000 (Rs. 6 Lacs at a conversion rate of Rs. 60 per CAD) again on 10.10.2023 in the same financial year, then a TCS of 5% will be applicable on Rs. 5 Lacs (Total money sent Rs. 12 lacs, free limit Rs. 7 lacs, Taxed amount Rs.5 lacs.) which comes to Rs. 25000/-

Is TCS applicable for the import & export of goods & services? –

No, TCS is not applicable for the import & export of goods & services. TCS(tax collected at source) is also not applicable for overseas direct investment in joint ventures & wholly owned subsidiaries by private limited companies, limited companies, LLPs & registered partnership firms.

Is TCS also applicable on overseas tour packages? –

Yes, TCS( tax collected at source) at 5% is applicable on overseas tour packages and there is no free limit of Rs. 7 lacs. Any tour & travel operator should collect TCS at 5% from the buyer of the overseas tour package regardless of the amount of the package.

Can I claim a refund for TCS? –

Yes, the amount paid by the buyer of foreign exchange by way of TCS will be reflected in his 26AS statement after the seller files his TCS(The tax collected at source) Return. Buyer can claim the refund while filing an income tax return in case the buyer does not any tax liability. Thus, the TCS amount will be refunded after filing of Income Tax Return.

The latest changes in the TCS slab were announced by Hon’ble Finance Minister Nirmala Sitharaman in the union budget 2023-24 on 1^st Feb 2023. Please note that all the changes mentioned below will become effective from 1^St July 2023.

• 20% TCS will be applicable for all overseas remittances except for education & medical expenditures that too without any threshold limit of 7 lacs.
• Remittances under a liberalized remittance scheme for family maintenance and GIFT, Investment in shares, properties & mutual funds will attract a flat TCS rate of 20% irrespective of the amount of transaction.
• Remittances for overseas education & medical treatment are kept the same as previously with only 5% TCS over 7 lacs of the transaction amount.
• Overseas tour packages will now become costlier as the TCS limit has been increased to 20% irrespective of the amount from 5% earlier.

Let us understand this with the help of the table given below:

FAQs on Tax Collected at Source (TCS)

1. What is tax collected at source and why is it charged?

Tax collected at source is a tax that the seller or service provider collects from the buyer at the time of receiving payment for certain specified transactions. It is charged to ensure early tax compliance and to track high-value transactions under the Income Tax Act.

2. What is the tax collected at source meaning in simple terms?

The tax collected at source meaning refers to a system where tax is collected upfront when a transaction takes place, instead of waiting until the end of the financial year. The collected amount is deposited with the government and later adjusted against the taxpayer’s final tax liability.

3. Where can I find details of tax collected at source deducted on my payments?

The details of tax collected at source can be checked in your Form 26AS or Annual Information Statement (AIS) on the Income Tax Department portal. These statements show the amount collected, the collector’s details, and the date of deposit.

4. How does tax collected at source affect an individual’s income tax return?

Tax collected at source is not an extra tax burden. It is treated as a tax credit and can be adjusted while filing your income tax return. If the total tax collected is more than your actual liability, you may claim a refund.

5. Why is understanding tax collected at source meaning important for taxpayers?

Understanding the tax collected at source meaning helps taxpayers plan their cash flow and avoid confusion during tax filing. It also ensures that the collected amount is correctly reflected in tax records and claimed properly.

6. Are details of tax collected at source mandatory to verify before filing returns?

Yes, verifying the details of tax collected at source is important before filing your return to ensure accuracy. Any mismatch between actual collections and reported figures may delay refunds or trigger notices from the tax department.

7. Is tax collected at source applicable to all transactions?

No, tax collected at source applies only to specific transactions notified under the Income Tax Act, such as certain foreign remittances, sale of goods, or high-value transactions, depending on prevailing rules.

8. How is tax collected at source different from other taxes?

The tax collected at source meaning differs from regular income tax because it is collected at the time of transaction rather than calculated at year-end. It acts as a tracking and compliance mechanism rather than a final tax.