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| TL;DR Summary: |
| TCS is an advance tax collected by your bank on foreign remittances, not an additional cost. Section 206C(1G) of the Income-tax Act governs TCS on outward remittances under LRS. Education remittances funded by an approved loan: 0% TCS, no threshold. Self-funded education and medical treatment: 0% up to ₹10 lakh, 2% above ₹10 lakh. Overseas tour packages: flat 2% from the first rupee, no ₹10 lakh threshold. Investments, gifts, and other purposes: 0% up to ₹10 lakh, 20% above ₹10 lakh. The ₹10 lakh threshold is per individual, per financial year, aggregated across all LRS remittances. You are responsible for tracking your total remittances, not the bank. If your PAN is not linked to Aadhaar, TCS rates double. The bank collects TCS at the time of remittance; tour operators collect it on packages. Claim TCS credit in Form 26AS when filing your income tax return. Excess TCS is refundable if your total tax liability is lower than the TCS collected. Businesses often misclassify vendor payments as personal remittances, triggering notices. LRS does not apply to companies or LLPs; different TDS provisions apply for them. |
TCS on foreign remittance is the tax your bank collects upfront when you send money abroad under the LRS (Liberalised Remittance Scheme). It applies whether you are funding a child’s education overseas, booking a family trip, or moving money into a foreign investment.
In this blog, we cover the current TCS rates under Section 206C(1G), the threshold, and how to claim the tax back. If you run a business that remits money to overseas vendors, you will also find the compliance traps you need to avoid.
What TCS on Foreign Remittance Covers – Section 206C(1G)
Section 206C(1G) of the Income Tax Act, 1961 requires authorised dealers, usually your bank, to collect Tax Collected at Source (TCS) when you send money abroad under the Reserve Bank of India’s Liberalised Remittance Scheme (LRS).
Section 206C(1G) applies specifically to two categories of transactions:
- Foreign remittances under LRS exceeding the prescribed threshold in a financial year
- Purchase of overseas tour programme packages
Your bank or authorised dealer is legally bound to collect it before the funds leave India. LRS remittances and tour package purchases are treated differently for TCS purposes with different rates, different thresholds, and different collectors.
Under the LRS framework resident individuals can remit up to USD 2,50,000 per financial year for permitted purposes.
These purposes include education, medical treatment, travel, investments, gifts to relatives, and family maintenance. However, you cannot use it for lottery, margin trading, and speculative activities.
Effective 1 April 2026, this provision under Section 206C(1G) has been re-enacted under Section 394 of the new Income-tax Act, 2025. The rates and thresholds remain unchanged, but compliance systems must now reference the new section numbers.
TCS is not a fee or a penalty. It is an advance collection of tax that gets credited to your PAN and adjusted against your actual tax liability when you file your return.
- If your total tax liability is lower than the TCS collected, you get a refund.
- If it is higher, the TCS reduces what you owe.
The provision does not apply to every rupee you send abroad. The provision applies only after your total LRS remittances in a financial year exceed the threshold.
The TCS rate then depends on the purpose declared to your bank. Choosing the wrong category can lead to excess TCS or scrutiny later.
NOTE:
TCS under Section 206C(1G) applies only to outward remittances under LRS. It does not apply to money received from abroad, and NRIs are outside the LRS framework.
Your bank (the authorised dealer) collects the TCS when the remittance is made. You do not calculate or pay it yourself. Your role is simply to provide accurate declarations about your LRS usage and ensure your PAN is linked to Aadhaar.
If you are a non-filer or your PAN is not linked to Aadhaar, Section 206CC can double the TCS rate. For example, a 20% rate becomes 40%. Check your PAN-Aadhaar linkage before making any LRS remittance to avoid this higher deduction.
Current TCS Rates by Remittance Purpose (Education, Travel, Investment, Other)
The Union Budget 2026 changed these rates materially, effective 1 April 2026. If you made a remittance before that date, the older rates applied. If you are planning one now, use this table:
| Remittance Purpose | Threshold | Rate From 1 April 2026 |
| Education (self-funded) | Above ₹10 lakh | 2% |
| Education (funded by an approved education loan) | Any amount | 0% |
| Medical treatment | Above ₹10 lakh | 2% |
| Overseas tour programme packages | No threshold | Flat 2% |
| Investment (stocks, property, assets) | Above ₹10 lakh | 20% |
| Gifts and other purposes | Above ₹10 lakh | 20% |
Let us walk through each category:
Education remittances: They now attract a uniform 2% TCS on amounts exceeding ₹10 lakh in a financial year. The earlier 5% rate has been reduced.
If you are sending money for education funded by a loan from a specified financial institution, TCS is nil regardless of the amount. This is a significant benefit for students relying on education loans.
Medical treatment abroad: It follows the same structure as self-funded education, nil up to ₹10 lakh, 2% above that.
Overseas tour packages: They received the most substantial relief. The earlier slab-based structure was 5% up to ₹10 lakh and 20% above.
That has been replaced with a flat 2% rate with no minimum threshold. This applies regardless of the package value. Travel agents and tour operators are the collectors here, not banks.
Investment-related remittances: These remain at the higher end. If you are buying foreign stocks, ETFs, real estate, or making foreign bank deposits, TCS is nil up to ₹10 lakh and 20% on the amount exceeding ₹10 lakh.
There is no reduction in this category. The same 20% rate applies to gifts, family maintenance, and any other purpose not specifically covered under education, medical, or tour packages.
WORKED EXAMPLES:
Investment: Suppose you want to invest ₹20 lakh in a US index fund. The first ₹10 lakh is exempt. On the remaining ₹10 lakh, your bank deducts 20% TCS, that is ₹2 lakh.
You need to arrange ₹22 lakh in total to complete a ₹20 lakh investment. That ₹2 lakh is credited to your PAN and adjusted when you file your return, but it does block cash flow in the short term.
Education: If you remit ₹15 lakh for self-funded tuition, TCS applies only on ₹5 lakh (the amount above ₹10 lakh) at 2%. That is ₹10,000, which is manageable compared to the earlier 5% rate.
The government intentionally applies stricter rules to LRS investments because these funds are less likely to flow back into the Indian economy than education or medical expenses.
The Rs.10 Lakh Annual Threshold and How It’s Tracked
The ₹10 lakh threshold is the single most important number in TCS on foreign remittances. Let’s understand how it works.
The threshold is per individual, per financial year, aggregated across all your LRS remittances combined, not per bank, not per transaction, and not per purpose. Your total outward remittances in a financial year determine whether TCS applies.
Suppose you send ₹4 lakh for travel and ₹7 lakh later for investing abroad. Since your total remittances exceed ₹10 lakh, TCS applies from the transaction that takes you past the limit, at the rate for that category.
The threshold was raised from ₹7 lakh to ₹10 lakh effective 1 April 2025. Budget 2026 did not change this threshold; it only reduced the rates for certain categories.
Your authorized dealer, usually your bank, tracks this using your PAN
Every time you initiate an LRS remittance, you fill out Form A2, declaring the purpose and amount.
The bank checks this against your remittance history for the financial year and calculates TCS on any amount that pushes you past Rs.10 lakh.
Since the tracking happens at the bank level and is tied to your PAN, using multiple banks will not help you avoid the threshold.
If you under-declare, TCS may not be collected correctly at the time of remittance. The income tax department tracks this through your PAN. Banks report TCS collections to the government. Discrepancies between your declarations and actual remittances can lead to notices.
Overseas tour packages are treated separately
The ₹10 lakh threshold does not apply to tour packages. TCS at 2% applies from the first rupee. This is because the provision for tour packages operates independently of the LRS threshold.
Implications for Businesses
For businesses whose promoters or employees use their personal LRS limit for company-related purposes, such as an executive’s business trip booked as a personal remittance, this cumulative tracking is important.
If the same individual has already used part of their Rs.10 lakh threshold for unrelated personal remittances earlier in the year, a subsequent business-related transfer could attract TCS sooner than expected.
Maintaining a simple internal record of employees who have used LRS remittances during the year, along with the purpose of each remittance, helps prevent unexpected issues at the bank.
Remember, PAN is mandatory for every LRS transaction. If you do not provide it, or if your PAN is inoperative because it is not linked to Aadhaar, the bank collects TCS at a higher rate under Section 206CC, regardless of your remittance purpose or amount.
Who Collects the TCS – The Bank or the Remitter?
The bank collects it, but you bear the cost.
Under Section 206C(1G), the authorised dealer, usually your bank, is required to collect TCS when processing an outward foreign remittance under LRS. The bank deducts the TCS amount at the time of debiting your account or receiving the payment, whichever is earlier.
When you initiate a foreign remittance, the bank:
- Asks for your PAN and a declaration of your year-to-date LRS usage
- Calculates the applicable TCS based on your total remittances and the purpose
- Deducts the TCS amount from your account before processing the transfer
- Deposits the TCS with the government
- Issues a TCS certificate in Form 27D
The TCS amount appears in your Form 26AS and Annual Information Statement (AIS)
For overseas tour packages, the collector is different. The tour operator collects TCS when you purchase a tour package. This is an important distinction. If you are booking a foreign holiday through a travel agent, the agent collects the TCS, not your bank.
Under Section 206C(1G), the legal obligation to collect TCS sits with the authorised dealer, which is mostly the bank processing your foreign exchange transaction.
You, as the remitter, do not calculate or deposit the tax yourself. Instead, the bank deducts it from the amount you are sending, or asks you to pay it alongside your remittance, before the funds move abroad.
This is a different mechanism from TCS under other parts of Section 206C, where a seller collects tax from a buyer on the sale of goods like scrap, timber, or minerals. In those cases, the seller is a business transacting with another business or individual. Under 206C(1G), the “seller” role is played by the bank, and the transaction is the act of remitting foreign currency rather than selling a physical good.
Implications for businesses:
LRS and TCS under Section 206C(1G) apply only to resident individuals, not companies. A company making genuine business payments abroad follows the FEMA rules for current account transactions, often with Form 15CA/15CB where required, not the LRS framework.
Using a director’s or employee’s personal LRS limit for company payments mixes two separate compliance regimes and can lead to costly mistakes.
If you are a sole proprietor or a partner remitting money for genuinely personal purposes, such as your own child’s education abroad, you use your personal LRS limit and the TCS rules discussed here apply to you directly, separate from your business’s tax obligations.
Claiming TCS Credit Against Advance Tax and Final Tax Liability
TCS on foreign remittances is credited to your PAN and appears in Form 26AS and the Annual Information Statement (AIS). When you file your income tax return, you can claim it as a credit against your total tax liability.
Here is the process step by step:
Step 1: Collect your TCS certificates
Your bank issues a TCS certificate in Form 27D. This certificate contains the details of the TCS collected: amount, date, and section under which it was collected. Tour operators also issue Form 27D for tour package TCS.
Step 2: Verify the TCS in Form 26AS
Log in to the income tax e-filing portal. Download your Form 26AS and AIS. Check that the TCS collected by your bank or tour operator appears correctly. If it does not appear, contact the collector immediately and request a correction.
Step 3: Report TCS in your ITR
When filing your return, report the TCS in Schedule TCS. The credit automatically adjusts against your advance tax liability, self-assessment tax, and final tax demand.
Step 4: Claim a refund if applicable
If your total income tax liability for the year is lower than the TCS collected, the excess is refundable. You claim this refund when filing your ITR. The refund is processed after your return is assessed.
Note: TCS credit is available only to the person in whose PAN it was collected. If a parent remits money for a child’s education but the remittance and TCS get recorded under the parent’s PAN while the child, as a student with independent income, later tries to claim the credit, that mismatch creates a genuine complication with the tax department.
Decide in advance whose PAN the remittance and the resulting TCS credit should sit under, based on who will actually file a return and use the credit.
Businesses can factor expected TCS credit into advance tax calculations if the remittance and TCS entry fall within the same financial year. This helps avoid interest under Sections 234B and 234C and prevents unnecessary cash flow blockage.
For multiple remittances, reconcile TCS credits quarterly by matching Form 26AS entries with books, remittance records, and dates. Resolving mismatches early is easier than waiting until return filing.
Common Mistakes Businesses Make With LRS Remittances to Vendors
Businesses that make cross-border payments often run into trouble with TCS. Here are the most frequent errors:
1. Using LRS for Payments That Should Not Go Through LRS
LRS is meant for resident individuals, not companies, LLPs, or partnership firms. Routing business payments through an employee’s or director’s personal LRS limit can mischaracterise the transaction and create FEMA compliance issues.
It also uses up the individual’s remittance limit and may result in incorrect declarations in Form A2.
Sole proprietors and professionals using LRS for business-related remittances should note that “other purposes” (such as vendor payments or professional fees) attract TCS once annual remittances exceed ₹10 lakh.
2. Ignoring the ₹10 Lakh Aggregate Threshold
The ₹10 lakh threshold is calculated across all LRS remittances linked to a PAN, whether personal or business-related.
For example, if an individual remits ₹6 lakh to a foreign vendor and another ₹6 lakh for overseas investments, the total remittance becomes ₹12 lakh. TCS applies to the excess amount. Businesses often overlook this aggregation and underestimate their tax liability.
3. Splitting Payments Across Multiple Employees
Some businesses attempt to avoid TCS by dividing a large payment among several employees or directors.
Suppose an organisation needs to transfer ₹25 lakh to an overseas consultant and structures the payment through three different employees, keeping each remittance below the threshold.
Tax authorities examine the commercial substance of transactions, not merely their structure. Artificially splitting payments can attract scrutiny, interest, and penalties.
4. Confusing TCS With TDS Under Section 195
TCS under Section 206C(1G) and TDS under Section 195 apply in different situations.
TDS under Section 195 applies when an Indian business makes taxable payments to non-residents, such as royalties, technical services, or consultancy fees. TCS applies only to eligible LRS remittances by individuals.
Complying with one provision does not automatically satisfy the other.
5. Using Incorrect Purpose Codes and Declarations
Banks require remitters to select purpose codes and disclose their year-to-date remittances. Incorrect declarations can lead to under-collection of TCS and future tax demands.
The Income Tax Department reconciles remittance data at the PAN level. Any mismatch between the declared purpose and the actual nature of the transaction may trigger notices.
6. Poor Documentation and Record-Keeping
Many disputes arise not because the payment itself was incorrect, but because businesses cannot produce supporting records.
Maintain a complete file containing:
- Vendor invoices and contracts.
- Bank remittance documents and Form A2.
- Form 15CA and Form 15CB, where applicable.
- TDS working papers and tax certificates.
- Internal approvals and correspondence.
For a closer look at how Form 15CA and Form 15CB requirements work alongside FEMA documentation, see our guide on repatriating funds from India.
5. Not Tracking Employee LRS Limits
If your finance team books international travel for multiple employees through personal remittances without a shared tracking sheet, you risk one employee unexpectedly crossing the Rs. 10 lakh threshold because of an earlier personal remittance you had no visibility into.
This can lead to a higher-than-expected TCS deduction and a scramble to explain it internally.
PKC’s Advisory on Cross-Border Payments & TCS Compliance
Cross-border payments involve much more than simply transferring money overseas. Businesses and individuals must take into consideration multiple regulations, including Tax Collected at Source (TCS), withholding tax, GST, FEMA requirements, and Double Taxation Avoidance Agreements (DTAAs).
A mistake in one area can lead to notices, penalties, cash flow disruptions, and lengthy disputes.
For over 37 years, PKC Management Consulting has advised businesses and individuals on managing these complexities. This is core to our NRI and cross-border advisory services, where FEMA compliance, remittance structuring, and tax filing are handled together rather than as separate problems
We support clients on key aspects of cross-border payment compliance, including:
- LRS and remittance structuring: Determining whether a payment should be routed through the Liberalised Remittance Scheme (LRS) or through FEMA-compliant business channels.
- TCS threshold tracking: Monitoring the cumulative ₹10 lakh LRS limit across banks and remittance purposes to ensure the correct amount of TCS is collected.
- Purpose classification and documentation: Advising on purpose codes, supporting documents, and remittance structures to minimise compliance risks.
- TDS and DTAA planning: Assessing whether payments to overseas vendors attract TDS under Section 195 and identifying available tax treaty benefits to reduce withholding taxes.
- TCS credit management: Ensuring that TCS credits are correctly reflected in Form 26AS and claimed in income tax returns.
- Higher-rate compliance: Helping clients avoid higher TCS rates triggered by non-filing of returns or PAN-Aadhaar non-linkage.
- Tour package and employee travel compliance: Advising businesses on the separate TCS rules applicable to overseas travel bookings.
- Dispute resolution and tax representation: Assisting clients with income tax notices, scrutiny proceedings, appeals, and litigation.
Our approach is built around long-term compliance rather than one-time filings.
PKC works with businesses that regularly pay overseas vendors, manage promoter-level remittances, or send employees on international assignments. As remittance volumes, tax laws, and reporting requirements evolve, wehelp clients update their compliance frameworks accordingly.
FAQs
What is the TCS rate on foreign remittances in 2026?
From 1 April 2026, education and medical remittances above Rs.10 lakh attract 2% TCS, down from 5%. Overseas tour packages attract a flat 2% with no threshold. Investment and other general remittances remain at 20% above Rs.10 lakh. Education funded through an approved loan continues to attract 0% TCS.
Does TCS apply to every foreign payment a business makes?
No. TCS under Section 206C(1G) applies to LRS remittances made by resident individuals, not to companies. Businesses paying overseas vendors typically use FEMA-compliant current account transactions with Form 15CA/15CB certification, a separate framework from LRS and its TCS rules.
Can a business claim TCS collected as a credit against advance tax?
TCS credit belongs to the PAN under which it was collected, usually an individual’s, not the business itself. If a promoter or employee’s personal LRS remittance generates TCS, that individual claims the credit in their own return, not the company’s advance tax computation.
What is the Rs.10 lakh threshold and how is it calculated?
It is a cumulative annual limit across all LRS remittances made under one PAN in a financial year, regardless of purpose. Once total remittances cross Rs.10 lakh, TCS applies to the excess at the rate relevant to that remittance’s declared purpose.
Is TCS on remittance the same as TDS on payments to non-residents?
No. TCS under Section 206C(1G) is collected by your bank when you remit money abroad under LRS. TDS under Section 195 is deducted by a payer when making a payment to a non-resident that is taxable in India. They apply to different transactions and neither substitutes for the other.
Who is responsible for collecting TCS – the business or the bank?
The authorized dealer, almost always your bank, is legally responsible for collecting and depositing TCS at the time of remittance. The remitter bears the cost through a reduced net transfer amount, but has no separate deposit or filing obligation for the TCS itself.
