TCS on Remittances and How It Is Credited
Tax collected at source (TCS) is collected by the bank when a resident remits money abroad under the Liberalised Remittance Scheme. This lesson sets out the threshold and rates as of October 2026, shows how the amount is worked out, and explains how it is credited against income tax.
What it is
When a resident sends money abroad under the Liberalised Remittance Scheme (LRS), the bank making the remittance collects TCS from the remitter once the year's remittances cross a threshold. The provision is section 394 of the Income-tax Act, 2025 (section 206C(1G) of the 1961 Act).
TCS is a way of collecting tax in advance. It is not a charge for remitting, and it has nothing to do with how the money performs once it is abroad.
The threshold and the rates
Rates as of October 2026: no TCS is collected until a person's LRS remittances in a financial year cross a combined ₹10 lakh. Older material quotes ₹7 lakh, which was the threshold before 1 April 2025.
Above the threshold the rate depends on the purpose. It is 20% for investments and other purposes, and 2% for education and medical treatment (5% before 1 April 2026). It is nil for education funded by a loan from a financial institution.
The rate applies only to the amount above the threshold, not to the whole remittance. Because the threshold is combined, a later remittance can attract TCS even if it is small, when earlier remittances have already used up the ₹10 lakh.
How it is credited
TCS is not an extra tax. The amount collected counts as tax already paid by the remitter and is set off against the income-tax liability for that year. If it exceeds the liability, the excess is refunded.
The cost is one of cash flow. The money is not available to the remitter until the credit or refund comes through.
Rules at a glance
Two remittances in one year
Priya, 47, a resident in Jaipur, remits ₹8,00,000 in May and ₹7,00,000 in November, both for investment abroad. She makes no other remittance that financial year.
No TCS is collected in May, because ₹8,00,000 is below the threshold. The November remittance takes her total to ₹15,00,000, which is ₹5,00,000 above ₹10,00,000. TCS of 20% × 5,00,000 = ₹1,00,000 is collected on the November remittance.
Same amount, different purposes
- A resident remits ₹25,00,000 under LRS in one financial year and makes no other remittance. Amount above the threshold: ₹25,00,000 − ₹10,00,000 = ₹15,00,000. Rates are as of October 2026.
- If the purpose is investment: 20% × 15,00,000 = ₹3,00,000.
- If the purpose is education, not funded by a loan: 2% × 15,00,000 = ₹30,000.
- If the purpose is education funded by a loan from a financial institution: nil.
- Credit, taking the investment case and ignoring any other tax already paid: if the remitter's income-tax liability for the year is ₹4,50,000 (an assumed figure), the balance payable is ₹4,50,000 − ₹3,00,000 = ₹1,50,000. If the liability is ₹2,20,000 (assumed), the refund is ₹3,00,000 − ₹2,20,000 = ₹80,000.
Result. TCS on ₹25,00,000 is ₹3,00,000 for investment, ₹30,000 for education and nil for loan-funded education. Where TCS is collected, it is set off against the year's income tax or refunded.
Key points
- No TCS up to a combined ₹10 lakh of LRS remittances in a financial year (₹7 lakh before 1 April 2025).
- Above the threshold: 20% for investments and other purposes; 2% for education and medical treatment (rates as of October 2026).
- Nil TCS for education funded by a loan from a financial institution.
- TCS applies only to the amount above the threshold.
- TCS is credited against the remitter's income-tax liability or refunded; it is not an extra tax, but it ties up cash meanwhile.
Common misunderstandings
- TCS is not an additional tax on investing abroad: it is credited against the remitter's income-tax liability, or refunded.
- The 20% rate is not applied to the whole remittance: only the amount above the combined ₹10 lakh threshold is charged.
- ₹7 lakh and 5% are not the current figures: the threshold is ₹10 lakh since 1 April 2025, and the education and medical rate is 2% since 1 April 2026.
Questions people ask
Does TCS apply to money sent to the GIFT IFSC?
Yes. Money a resident sends there goes under LRS, so the same threshold and rates apply.
Does TCS on LRS arise when buying units of an Indian mutual fund that invests overseas?
No. Those units are bought in rupees and the investor makes no remittance under LRS.
What if the TCS collected is more than the tax due for the year?
The excess is refunded.
What this lesson relies on
- Income-tax Act, 2025 — section 394 (tax collected at source on remittances under the Liberalised Remittance Scheme; section 206C(1G) of the 1961 Act), rates as of October 2026
- RBI — Liberalised Remittance Scheme (RBI FAQ on LRS)
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.