TCS on Foreign Remittance FY26: Thresholds, Rates, and How to Claim Credit
TL;DR
- TCS on Liberalised Remittance Scheme (LRS) outflows applies at 20% on most non-education, non-medical purposes once you cross Rs. 10 lakhs in a financial year.
- Education and medical remittances enjoy lower rates: 0.5% on amounts above Rs. 10 lakhs if funded via a specified education loan, 5% for self-funded education and medical above Rs. 10 lakhs.
- Overseas tour packages bought from Indian operators attract 5% TCS up to Rs. 10 lakhs and 20% beyond, with no threshold benefit for the first Rs. 7 lakhs.
- TCS is not an additional tax; it is a prepaid tax credit shown in Form 26AS and AIS. You can adjust it against your tax liability or claim a refund when filing ITR.
- Banks and authorised dealers collect TCS at source. Keep Form 27D issued by them; without it, claiming credit becomes painful.
What this means in plain terms
Whenever you transfer money out of India under the RBI's Liberalised Remittance Scheme, the bank or authorised dealer collects a small percentage of that remittance as Tax Collected at Source. This is not an extra cost. It is your own future tax being collected upfront. When you file your income tax return for FY 2025-26 (AY 2026-27), this amount sits as a credit against whatever tax you owe. If you owe less, the balance gets refunded. If you owe nothing, you get the entire TCS back.
The intent behind the regime is simple. The government wants visibility into who is sending large sums abroad, why, and whether those individuals are declaring corresponding income. So instead of stopping you from remitting, the rules tax you a bit upfront, force a paper trail, and then trust your ITR to settle the score.
The current LRS limit and TCS structure
LRS annual cap
A resident individual can remit up to USD 250,000 (about Rs. 2.07 crores at recent exchange rates) per financial year under LRS for permitted current and capital account transactions. This includes overseas travel, education, medical treatment, investment in foreign equity, gifts, maintenance of relatives, and a few other purposes notified by RBI.
TCS thresholds and rates from October 2023 onwards
The Finance Act 2023, as amended, reshaped TCS rates. As applicable in FY 2025-26:
- Education remittance funded by a Section 80E education loan: nil up to Rs. 10 lakhs, 0.5% above Rs. 10 lakhs.
- Education or medical remittance funded by own funds: nil up to Rs. 7 lakhs, 5% above Rs. 7 lakhs (the Rs. 10 lakhs threshold applies for "any other LRS purpose" but education and medical retain the lower 5% rate above Rs. 7 lakhs in practice; refer to Section 206C(1G)).
- Overseas tour package: 5% up to Rs. 10 lakhs (with no threshold for the first Rs. 7 lakhs starting from FY 2023-24's revised wording), 20% above Rs. 10 lakhs.
- All other LRS remittances (investment, gift, maintenance of relatives, deposits abroad): nil up to Rs. 10 lakhs, 20% above Rs. 10 lakhs.
Who collects and reports
The authorised dealer bank or the tour operator is the collector. They report it under Section 206C(1G) of the Income Tax Act. The amount lands in your Form 26AS, AIS, and TIS within a few weeks of the remittance.
How TCS credit works in your ITR
Pre-filled data
Once collected, TCS appears in your Annual Information Statement. The new ITR utilities for AY 2026-27 pull this number into Schedule TCS automatically. You should verify it matches what your bank's Form 27D shows.
Adjusting against tax liability
TCS sits in the same bucket as TDS and advance tax. When the portal computes your final tax payable, it deducts total TCS, total TDS, and advance tax from your gross liability. A positive balance means refund; a negative balance means you pay the shortfall.
Carrying it forward
Unlike TDS, TCS under Section 206C(1G) is not "income" in your hands. You do not declare the remitted amount as income unless it independently qualifies (such as a foreign investment that earned dividends). The TCS itself is purely a credit.
When TCS does not apply
Business remittances
LRS is for residents in their personal capacity. Outward remittances by businesses for legitimate trade (imports, professional fees abroad, software licences) flow through the Authorised Dealer route under FEMA but are not LRS remittances. They have their own TDS framework, primarily Section 195.
Non-residents and OCIs
LRS applies only to resident individuals as defined under FEMA. NRIs and OCIs operating their NRE/NRO accounts have separate repatriation rules and are outside LRS.
Below the threshold
If your aggregate LRS remittances in a financial year stay within Rs. 10 lakhs (or Rs. 7 lakhs for education/medical self-funded), TCS is nil. The threshold is aggregate, not per transaction, so multiple small transfers still add up.
A real example
Priya, 32, Rs. 24L CTC, Pune, decides to fund her own MBA at a European university in FY 2025-26. Her total fee for the year is Rs. 35 lakhs, all paid from her savings (no education loan). She remits the amount in two tranches, both via her HDFC Bank LRS facility.
Step 1: First remittance of Rs. 15 lakhs in July 2025. Since this is education and self-funded, TCS kicks in above Rs. 7 lakhs. Bank collects 5% on Rs. 8 lakhs = Rs. 40,000.
Step 2: Second remittance of Rs. 20 lakhs in January 2026. Cumulative LRS now Rs. 35 lakhs. Of this, the first Rs. 7 lakhs is already past, so the entire Rs. 20 lakhs attracts 5% TCS = Rs. 1,00,000.
Step 3: Total TCS for FY26 = Rs. 1,40,000. HDFC Bank issues Form 27D. The amount appears in Priya's AIS.
Step 4: While filing ITR-2 for AY 2026-27, Priya has total tax liability of Rs. 4.2 lakhs (salary tax less TDS). She enters TCS of Rs. 1,40,000 in Schedule TCS. Her net tax payable drops from Rs. 4.2 lakhs to Rs. 2.8 lakhs.
Step 5: If she had opted for an education loan under Section 80E for any portion of the fees, the TCS rate would drop from 5% to 0.5% on that portion, saving her over Rs. 1.2 lakhs in upfront TCS.
What to do this week
- Open your bank's net banking and download the TCS certificates (Form 27D) for any LRS remittance you made in FY 2025-26.
- Log into the income tax portal and check Annual Information Statement for the entries. Flag any mismatch.
- If you plan a large overseas remittance for education, evaluate whether an education loan under Section 80E reduces both TCS (from 5% to 0.5%) and gives you Section 80E interest deduction.
- Time large remittances thoughtfully. If you can break a Rs. 12 lakhs gift across two financial years (Rs. 9 lakhs in March, Rs. 3 lakhs in April), you might dodge 20% TCS on the Rs. 2 lakhs above the threshold.
- Run the 6-step assessment at https://myfinancial.in to see your old-vs-new regime delta, unused deductions, and insurance gap in under 10 minutes.
FAQ
Is TCS on LRS an extra tax I cannot recover?
No. TCS is a prepaid tax. It sits in your Form 26AS and AIS, and you adjust it against your total tax liability when filing ITR. Any excess is refunded with interest under Section 244A.
Does TCS apply if I send money to maintain my parents abroad?
Yes, if the cumulative amount in a financial year exceeds Rs. 10 lakhs. Maintenance of close relatives is a permitted LRS purpose but falls under the "all other" 20% TCS bucket above the threshold.
What is the difference between TCS on tour packages and TCS on LRS?
TCS on an overseas tour package bought from an Indian operator is collected by the operator under Section 206C(1G). LRS TCS is collected by your bank when you send money abroad. Rates can differ: tour packages have a 5% rate from the first rupee in many cases, while LRS for travel only triggers above Rs. 10 lakhs (for "other" purposes).
Does buying foreign stocks through Indian brokers attract TCS?
Yes. When you fund a US stock account via your Indian broker's LRS facility, the bank collects TCS at 20% above Rs. 10 lakhs cumulative for the year. The credit comes back in your ITR.
Will the bank deduct TCS on every remittance or only above the threshold?
Banks track your cumulative LRS for the financial year. They start collecting TCS the moment your cumulative amount crosses Rs. 10 lakhs (or the applicable threshold for the purpose).
Can I claim TCS refund if I have no tax liability?
Yes. File your ITR even if your income is below the basic exemption limit. The TCS will be refunded entirely with interest from 1st April of the assessment year.
What happens if the bank collected TCS but it does not show in my AIS?
First, ask the bank for a corrected Form 27D and ensure they have filed Form 27EQ correctly. If it still does not reflect after 90 days, raise a grievance on the income tax portal and attach the certificate.
Sources
- Income Tax Act, Section 206C(1G): https://incometaxindia.gov.in/
- RBI Master Direction on Liberalised Remittance Scheme: https://www.rbi.org.in/
- Finance Act 2023 amendments: https://incometaxindia.gov.in/
- AIS user manual, incometax.gov.in: https://www.incometax.gov.in/
- Form 27D format, TRACES: https://www.tdscpc.gov.in/
This is general information, not personalised advice. For your situation, consult a Certified Financial Planner.
