How To Avoid 20% TCS On Foreign Remittances & Money Transfer

Avoid 20% TCS On Foreign Remittances & Money Transfer

Did you know that the Indian government has changed its tax systems since October 1, 2023?

The Indian Government increased the tax collected on foreign remittances from 5% to 20%. This change significantly impacted Indian residents who transfer money abroad, be it for vacation, education, gifts, etc. They will have to pay higher taxes than before. This impact on taxes is even more significant due to the past year’s 7.8% rupee depreciation. The effect of this shift on the Indian economy goes beyond individual senders; it affects the economy as a whole.  This shift increased the cost of imports, leading to inflation and a trade deficit. 

The main reason behind this shift was to target wealthy individuals who find a way to avoid taxes when transferring money abroad.

 

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However, you can minimise the tax impact through these ways:

  1. Sending money below 7 Lakhs: You can avoid high TCS rates if you transfer money below 7 lakh.
  2. Medical and educational expenses: Send money for education or medical treatment purposes. For this reason, TCS is just 0.5% beyond the INR 7 lakh threshold when paid via an educational loan.
  3. Use Non-residential Indian (NRI) account: Using NRI accounts, if you have one, can be extremely beneficial. They are not subject to TCS on foreign remittance. 

These general strategies can be used, but they might not apply to everyone’s situation. So, you must be wondering, what can I do? 

The answer is simple: choose an online remittance company like HiWiPay. HiWiPay can be your support system. It offers a swift, user-friendly solution to avoid 20% TCS on Foreign remittances and money transfers. Fast transfers processed within 24-48 hours, competitive rates (1-2% markup), and transparent fee structures ensure compliance with regulations and provide flexibility in payment methods. Visit our website or download our app today!

Understanding the TCS on Foreign Remittance Transactions

TCS stands for “Tax Collected at Source”. It is a charge levied against the person by the authorised dealer or bank transferring money abroad. The main aim of this provision is to track remittances, create a link to the income tax returns of those making them, and prevent tax evasion.

Let’s understand this with an example for more clarity:

Suppose Mr. Sharma wants to send INR 10 lakhs to his daughter, who is studying in the United States. Under the new TCS rules effective from October 1, 2023, the following would apply:

  • No TCS is levied on the first INR 7 lakhs of his remittance, as it is below the threshold.
  • For the remaining INR 3 lakhs, if the remittance is made through an education loan, the TCS rate is 0.5%. This means Mr. Sharma would need to pay an additional INR 1,500 (0.5% of INR 3 lakhs) as TCS.
  • If it is not through a loan, the TCS rate is 5%. In this case, Mr. Sharma would need to pay an additional INR 15,000 (5% of INR 3 lakhs) as TCS.

So, depending on whether the education is funded through a loan or not, Mr. Sharma would need to pay either INR 10,01,500 or INR 10,15,000 in total. 

The example clearly shows that the TCS rates and rules vary depending on the purpose of the remittance and other factors. So, let’s move on to the applicable TCS rates on foreign remittances as per their purpose. 

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Applicable Rates for TCS on Foreign Remittance

Before 2023’s Union Budget, transactions over ₹7 lakhs were subject to a 5% TCS on overseas remittances made under the Liberalised Remittance Scheme (LRS). However, Mrs. Nirmala Sitharaman, India’s Finance Minister, suggested raising this tax in the budget from 5% to 20%. On October 1, 2023, the new rates were approved and put into effect..0

The only exception for international money transfers for travel or medical expenses is that the TCS rate of 20% is now applied to all foreign remittance transactions, including international money transfers, investments, shopping, and the purchase of overseas trip packages.

Seamless-Money-Transfers-Abroad-Within-24-Hours

Here are the new TCS rates on overseas outward remittances effective from October 1, 2023:

  1. TCS Rates for Overseas Outward Remittances (excluding medical and educational purposes)
Amount of Remittances TCS Rate
Below INR 7 LakhsNil
INR 7 Lakhs or more20%
  1. TCS Rates for Education Remittances
Amount of Remittances PurposeTCS Rate
Below INR 7 LakhsEducation Nil
INR 7 Lakhs or moreEducation Through Loan0.5%
INR 7 Lakhs or moreEducation Not Through Loan5%
  1. TCS Rates for Medical Remittances
Amount of Remittances PurposeTCS Rate
Below INR 7 LakhsMedical PurposesNil
INR 7 Lakhs or moreMedical Purposes5%
  1. TCS Rates for Overseas Packages
Amount of Remittances PurposeTCS Rate
Below INR 7 LakhsOverseas Packages5%
INR 7 Lakhs or moreOverseas Packages20%
  1. TCS Rates for Overseas Investments
Amount of Remittances PurposeTCS Rate
Below INR 7 LakhsOverseas InvestmentsNil
INR 7 Lakhs or moreOverseas Investments20%

Note:

  1. Regardless of the reason for the remittances, TCS will be subject to the aggregate threshold amount of INR 7 lakhs. Depending on the reason for the transaction, TCS will be applied at various rates when this threshold is passed.
  2. Debit or forex card payments fall under the Liberalized Remittance Scheme (LRS). Only international credit card payments are exempt from TCS.

Key Ways To Avoid 20% TCS On Foreign Remittances & Money Transfer

To avoid paying high TCS rates, consider the following: 

Remittance Below INR 7 Lakh

You don’t have to pay TCS on money transferred overseas if the amount is below INR 7 lakh, so keep the transfer amount below INR 7 lakh to avoid 20% TCS On Foreign Remittances . Remember that to avoid paying TCS this way, the total amount you send in a financial year should be below INR 7 lakh. You can use this method irrespective of your purpose of sending money abroad and the method of transferring money. 

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Education or Medical Treatment Purposes

Rest assured that you won’t have to pay 20% TCS when sending money abroad for education or medical treatment purposes as the TCS rate for these is really low as per the new TCS rates on overseas outward remittances, effective from October 1, 2023.

To avoid paying TCS when sending money abroad to your loved ones for education or medical treatment purposes, either you can send it below INR 7 lakh to avoid it altogether or consider sending money in the following ways to reduce the TCS rate:

  • For education purposes, send money above INR 7 lakhs but fund it through a loan; this way, the TCS rate will be 0.5% only. If you send it without funding it through a loan, the TCS rate is 5%.
  • For medical treatment purposes, you can send money above INR 7 lakhs at a 5% TCS rate.
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Using Credit Cards

You can use your international credit card to transfer money abroad to avoid 20% TCS On Foreign Remittances .they are not considered to be a part of the Liberalised Remittance Scheme (LRS), and therefore, are exempt from TCS. This applies only as long as the amount does not exceed INR 7 lakh in a financial year.

Note that credit cards might be included as a part of the Liberalised Remittance Scheme (LRS), meaning you will have to pay TCS when transferring money abroad through it in the future. This is because initially, the Finance Ministry had included credit cards as a part of the Liberalised Remittance Scheme (LRS), but the Government decided to postpone this as per its 16th May 2023 e-gazette notification. They postponed it to give banks and card networks adequate time to make arrangements for the necessary IT-based solutions.

Utilise a Non-Resident Indian (NRI) Account

An NRI account is a bank account opened in India in the name of an NRI. It is usually used to manage payments earned in India. As per the Income Tax Act, if you use an NRI account to transfer money to your non-residential external (NRE) or foreign accounts, TCS will not apply.

This implies that non-resident Indians (NRIs) can simply use their account to transfer their Indian earnings, such as pensions, dividends, salaries, rent, investments, profits from enterprises that are allowed to be repatriated, distributions from any kind of deposit, etc., without having to pay TCS.

Also, a foreign currency exchange (Forex) dealer can waive TCS for remittances when you transfer money through them.

Avoid Packaging of the trip

If the sum for an overseas tour travel package is up to INR 7 Lakh, a TCS of 5% will be applied. After this point, a avoid 20% TCS On Foreign Remittances & Money Transfer will be applied. Separate bookings and payments can help avoid this TCS. For example, if you purchase your overseas flight tickets, hotels, and other costs separately, you won’t pay any TCS as long as the company selling such tickets stays with you while you are in India. However, TCS regulations will apply if you are in India and making payments in a foreign currency for your plane tickets and hotel reservations.

Get a Zero Forex International Debit Card 

A zero forex international debit card is a bank-issued debit card that allows you to conduct foreign currency transactions without incurring extra foreign exchange costs. By using a zero forex international debit card, you can potentially save on the TCS that applies to foreign remittances exceeding INR 7 lakh in a financial year under Indian tax laws.

Please note that while these cards can offer significant benefits, they may also have certain limitations or fees, such as ATM withdrawal fees or annual fees. Do check the terms and conditions and understand the fee structure before getting such a card. 

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What is the Difference Between TCS and TDS?

Meaning

  • TDS stands for Tax Deducted at Source. It is collected by the government on the income earned.
  • TCS stands for Tax Collected at Source. It is collected by the government at the time of payment of imported goods or services.

Application

  • TDS is applicable to various types of income or services, such as rent, commission, interest, rent, salaries, brokerage and more.
  • TCS only applies to specific imported goods or services such as selling toll tickets, forest products, cars, tendu leaves, minerals, liquor, timber, scrap, etc.  

Liability

  • Liability for TDS falls on the individual or company making the payment.
  • Liability for TCS falls on the individual or business selling the goods or services.

Certificates

  • There are two primary types of TDS certificates: Form 16 and Form 16A, which are issued to individuals who have deducted tax on payments made to others.
  • There is only one certificate for TCS: Form 27D issued to the purchaser of the goods.

Regulations 

  • TDS is governed by the Income Tax Act, 1961.
  • TCS is governed by the Finance Act, 1994.

Examples of TDS and TCS:

  • TDS: Suppose you are an employee at a company, and your annual salary is INR 6,00,000. As per the Indian tax laws, if an employee’s salary is more than INR 2,50,000 per annum, the employer is required to deduct TDS. The rate of TDS deduction depends on the income tax slab under which you fall. For simplicity, let’s assume it is 10%. So, your employer will deduct INR 60,000 (10% of INR 6,00,000) as TDS, and you will receive INR 5,40,000 as your net salary for the year.
  • TCS: Suppose you buy a car worth INR 12,00,000 from a car dealer. As per the Indian tax laws, if the value of the car is more than INR 10,00,000, the seller is required to collect TCS. The rate of TCS is 1% for a car. So, the car dealer will collect INR 12,000 (1% of INR 12,00,000) as TCS. Therefore, the total amount you pay to the dealer will be INR 12,12,000 (INR 12,00,000 + INR 12,000).

FAQs on Avoid 20% TCS On Foreign Remittances

What is TCS on foreign remittance?

TCS is a charge levied against the person by the authorised dealer or bank transferring money abroad. 

Who is eligible for a TCS refund?

A person is eligible for a TCS refund under the following conditions:
If your total TCS amount is higher than your tax liability for the year.
If you have filled your ITR return on time.
If you have supporting documents for remittances like bank statements and forex card statements.
If you have provided accurate information in the ITR.

How to Claim TCS while filing an ITR?

Claiming TCS while filing ITR involves the following steps:
Collect the relevant documents, such as the TCS certificate (Form 27D) provided by the collected.
Before filing your ITR, verify Form 26AS, which is a consolidated tax statement that provides details of the taxes deducted on your behalf.
File your ITR for the year.
Claim TCS refund in ITRif you have paid more TCS than your actual tax liability by filling out the relevant sections of the ITR form and providing supporting documents. 

How much money can you send overseas under LRS in a year?

As per the Liberalised Remittance Scheme (LRS) regulations, you can send up to USD 250,000 (INR 20,682,750) per financial year (April-March). If you need to send more money than USD 250,000 (INR 20,682,750) per financial year (April-March), you must contact the RBI for approval

How can I avoid 20% TCS on foreign remittances?

To avoid paying 20% TCS (Tax Collection at Source) on foreign remittances, you may consider the following options:
Claim Exemptions: If the remittance falls under categories like education loans or medical treatment, the applicable TCS rate may be lower, and in some cases, exemptions may apply.
Submit Form 15CA/CB: In specific cases where the remittance is not taxable, submitting these forms might help you avoid TCS.
Lower TCS Rates for Specific Cases: For remittances under the Liberalized Remittance Scheme (LRS), a 5% TCS applies for education or medical treatment, provided certain limits are met.

How can I avoid TCS on foreign remittances?

TCS on foreign remittances may not be entirely avoidable unless:
Your transaction falls under an exempt category (e.g., medical treatment, education abroad within certain limits).
You submit appropriate documentation, such as Form 15CA/15CB, demonstrating that the remittance is not taxable.
Claim Lower TCS Rates: For specific remittances such as those for education or medical purposes, TCS may be reduced to 5% or 0.5%, depending on the amount and purpose.

What is the TCS rate for foreign remittances?

As of recent guidelines:
20% TCS applies to most foreign remittances, except for specific categories.
5% TCS applies if the remittance is for education or medical treatment under the Liberalized Remittance Scheme (LRS), provided the total remittance exceeds ₹7 lakh.
0.5% TCS applies to education remittances if the payment is sourced from an educational loan.

Can I claim a refund of TCS on foreign remittance?

Yes, you can claim a refund of TCS on foreign remittance when filing your income tax return. If the TCS collected exceeds your actual tax liability, the excess amount can be claimed as a refund:
Filing ITR: You need to declare the TCS paid when filing your Income Tax Return (ITR).
TCS Credit: TCS will be reflected in your Form 26AS, and you can claim the credit for the tax paid.
Refund Process: If the total taxes paid, including TCS, exceed your tax liability, the excess can be refunded after processing your ITR.

How to avoid TCS on foreign remittance?

To minimize TCS on foreign remittance:

Check Purpose: Ensure remittance purpose qualifies for lower TCS rates.
Use Exemptions: Look for any applicable exemptions or thresholds.
Consider Amount Limits: Smaller remittance amounts may not attract TCS.
Tax Planning: Claim TCS as a refund when filing your income tax return.
Consult a Tax Advisor: Get professional advice tailored to your situation.

References

BS Web Team. “When and How Can I Claim a TCS Refund on Foreign Remittance?” @Bsindia, Business Standard, 7 June 2023, www.business-standard.com/finance/personal-finance/when-and-how-can-i-claim-a-tcs-refund-on-foreign-remittance-123060700543_1.html. Accessed 1 Apr. 2024.

CA Dr. Dilip Satbhai. “New TCS Rule from 1st October 2023: Tips to Reduce TCS on Foreign Trip.” TaxGuru, 26 Sept. 2023, taxguru.in/income-tax/tcs-rule-1st-october-2023-tips-reduce-tcs-foreign-trip.html. Accessed 1 Apr. 2024.

Chopra, CA Mamta. “New 20% TCS on Foreign Remittance from 01.10.2023 Simplified.” TaxGuru, 30 Sept. 2023, taxguru.in/income-tax/new-20-percent-tcs-foreign-remittance-oct-2023-simplified.html#:~:text=As%20of%20this%20date%2C%20all%20overseas%20outward%20remittances%2C. Accessed 1 Apr. 2024.

“Liberalised Remittance Scheme FAQs.” Rbi.org.in, 6 Apr. 2023, www.rbi.org.in/Scripts/FAQView.aspx?Id=115#Q9. Accessed 1 Apr. 2024.

“Overview on Eligibility for Claiming a Refund of TCS | IFCCL.” India Financial Consultancy Corporation, 16 Mar. 2024, www.caindelhiindia.com/blog/claiming-a-refund-of-tcs/. Accessed 1 Apr. 2024.

Ray, Anulekha. “3 Ways to Avoid the 20% TCS on Overseas Tour Packages Effective July 1, 2023.” The Economic Times, Economic Times, 27 June 2023, economictimes.indiatimes.com/wealth/tax/3-ways-to-avoid-the-20-tcs-on-overseas-tour-packages-or-international-trip-effective-july-1-2023/printarticle/101023697.cms. Accessed 1 Apr. 2024.

—. “No TCS on Foreign Remittances of up to Rs 7 Lakh, Credit Card Spending Overseas; Higher Rates to Kick in from October 1.” The Economic Times, 6 July 2023, economictimes.indiatimes.com/wealth/tax/new-tcs-rule-to-come-into-effect-from-october-1-2023-finance-ministry/articleshow/101345956.cms?from=mdr. Accessed 1 Apr. 2024.

Shetty, Surabhi. “How to Avoid 20% TCS on Foreign Remittances & Money Transfer.” Www.moneyhop.co, 10 Oct. 2023, www.moneyhop.co/blog/how-to-avoid-tcs-on-foreign-transfer. Accessed 1 Apr. 2024.

Surana, Ektha. “Difference between TDS and TCS.” Cleartax, 22 Jan. 2024, cleartax.in/s/difference-between-tds-and-tcs. Accessed 1 Apr. 2024.

“Tax Collected at Source (TCS) – Rates, Payment, and Exemption.” Cleartax, 1 Mar. 2024, cleartax.in/s/tax-collected-source. Accessed 1 Apr. 2024.

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