TCS on Foreign Remittances under LRS: ₹10 Lakh Threshold, 2% Education/Travel Rate

Anyone remitting money abroad under RBI's Liberalised Remittance Scheme (LRS) — for a child's overseas education, medical treatment, an international holiday, or an offshore investment — needs to account for Tax Collected at Source (TCS) that the remitting bank or authorised dealer collects upfront. The rate structure has changed materially over the past two years, most recently for FY 2026-27, and using an outdated rate assumption leads to either an unpleasant surprise at remittance time or an incorrect cash-flow estimate.

1. Current TCS Structure for FY 2026-27

What Changed: The threshold was raised from ₹7 lakh to ₹10 lakh effective 1 April 2025. For FY 2026-27, the education and medical rate was reduced from 5% to 2%, and the earlier 5%/20% slab structure for overseas tour packages was replaced with a flat 2% rate applying from the first rupee (no threshold at all for tour packages specifically). The 20% rate for general/other-purpose remittances (investment, gifting) remains unchanged, and continues to apply above the ₹10 lakh threshold.

2. Why Tour Packages Are Treated Differently

Overseas tour packages are structurally distinct from a direct remittance — the payment goes to a tour operator for a packaged combination of travel, accommodation, and other services, rather than being a remittance the traveller sends abroad for their own account. This is why tour packages have never carried the same ₹10 lakh (formerly ₹7 lakh) threshold that applies to direct LRS remittances — the flat rate (now 2%, from the first rupee) applies to the entire package cost regardless of amount, collected by the tour operator itself.

3. Structural Renumbering — Income Tax Act, 2025

Section 206C(1G) of the Income Tax Act, 1961 — the provision governing this TCS — has been renumbered as Section 394(1) under the Income Tax Act, 2025, which applies to income/transactions from Tax Year 2026-27 onward (1 April 2026). For remittances made during FY 2025-26 (the current filing year, assessed as AY 2026-27), the old Section 206C(1G) citation remains the operative reference; remittances from 1 April 2026 onward fall under the new Act's Section 394(1), with the same underlying rate structure and thresholds carried forward under the renumbered provision.

4. Claiming Credit for TCS Collected

TCS is not an additional tax burden in the way it might first appear — it is an advance collection, fully creditable against the remitter's final income tax liability, exactly like TDS:

1. The TCS collected is reflected in Form 26AS and the Annual Information Statement (AIS) of the person on whose PAN the remittance was made.
2. When filing the income tax return, the TCS amount is claimed as a credit against the total tax liability for that year, reducing the tax payable or increasing the refund.
3. If the total TCS collected exceeds the actual tax liability for the year (common for individuals whose overall taxable income doesn't otherwise attract 20% or even 2% of the remitted sum as tax), the excess is refunded after return processing.
4. Salaried employees can also request their employer to account for TCS credit against monthly TDS on salary, under the mechanism allowing an employee to declare other taxes paid/collected (including TCS under LRS) so the employer reduces monthly salary TDS accordingly — this avoids the cash-flow drag of paying TCS upfront and only recovering it as a refund after year-end filing.

5. Practical Planning Points

• Aggregate remittances across the financial year, per remitting individual/PAN, since the ₹10 lakh threshold applies cumulatively across all LRS remittances by that person in the year, not per individual transaction.
• Route education-loan-funded remittances correctly through the specified financial institution to access the concessional 0.5% rate — funding the same education abroad through a personal/informal loan or self-funds instead attracts the higher 2% rate.
• Factor TCS into short-term cash flow planning for large one-time remittances (a lump-sum tuition payment or property investment abroad), since the TCS amount is collected upfront by the bank at the time of remittance, even though it is fully recoverable at return-filing time — this is a timing cash-flow issue, not a permanent cost, but it needs to be planned for.
• Retain the TCS certificate/challan details from the remitting bank for reconciliation against Form 26AS/AIS when filing the return, since discrepancies between what the bank reported and what shows in AIS are not uncommon and are easier to resolve with the original documentation on hand.

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