Those making foreign remittances need to pay attention to their tax collected at source (TCS) liability from next month as a key tax provision kicks in from 1st October 2020.

As per the Finance Act 2020, funds sent abroad under the RBI’s liberalised remittance scheme is subject to a 5% TCS subject to certain riders.

The Government has, however, offered some carve-outs so that not every overseas remittance will be subject to TCS.

The government has offered some carve-outs so that not every overseas remittance will be subject to TCS.

For example, it will not apply if the amount remitted is less than INR 700,000.

Also, on payments above INR 700,000, the TCS will apply only on the amount above this threshold if the purpose is not for buying a tour package.

TCS on foreign remittances

Considering many Indian students obtain loans to pursue education abroad, the TCS on remittances funded by financial institutions for foreign studies is kept at a lower rate of 0.5% on the payment above INR 700,000.

Also, considering that many taxpayers are subject to taxes deducted at source (TDS), the TCS provision on remittances will not apply if the payer is subject to TDS under the Income Tax Act.

The Finance Act notified on 27 March 202 made these provisions applicable from 1 October.

The finance ministry has been extending the scope of both TDS and TCS and encouraging electronic payments to have a better idea of transactions in the economy and to be able to match the spending pattern of assessees with their reported taxable income.

Many financial institutions and Banks have been communicating the applicability of TCS on remittances from October onwards,  to their customers.


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Qualification: CA in Practice
Company: Sanjay Thampy and Associates
Location: Mumbai, Maharashtra, IN
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A practicing Chartered Accountant, I expertise in direct and indirect tax laws providing advisory services to various large and medium sized corporates. View Full Profile

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  1. Pardeep says:

    I am a govt employee and pays income tax on my income from salary. I want to remit foreign exchange as a gift to my son from my retirement benefits and GPF which are tax exempted. Will it attract TCS?


    Whether Rebate for Education Purpose foreign remittances w.e.f 01 October 2020 is applicable for Eduction Loan only or to any type of Loan.???

  3. Nagaraj R says:

    We are International tour operators, so 5% TCS will be applicable any transaction which happens with International suppliers who provide Travel services!!!

  4. Mohan S says:

    Is payment agsinst imports of goods covered under this provision? On a plain reading I am of the viee this doesn’t seem to apply for import payments.

    1. CA Sanjay Thampy says:

      I have covered only those payments under RBI Liberalised Remittance Scheme in this article. Different provisions for TC apply for payments against imports etc.

    1. CA Sanjay Thampy says:

      The INR 7 lakhs is the basic exemption limit. TCS will apply only on amounts after this basic limit is exhausted, either in single or in multiple transactions in a year.

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January 2021