People who move abroad for work or education face difficulties when they need to transfer their savings to foreign banks. The Tax Collected at Source (TCS) under Section 206C(1G) of the Income Tax Act requires a 20% tax payment for all foreign transfers exceeding ₹7 lakh during each financial year. The Income Tax Act introduced this requirement when it took effect in October 2023.
The Tax Collected at Source (TCS) functions as an early payment of taxes which you can recover through your Income Tax Return (ITR) filing. The payment of TCS at the time of transfer blocks your access to the funds until you file your tax return. The following section presents legitimate methods which help you minimize or eliminate the need to pay 20% TCS on your foreign transfers.
1. Spread Your Foreign Transfers Between Different Fiscal Years
The Tax Collected at Source (TCS) only affects amounts that exceed ₹7 lakh during each financial year. You should make two separate transfers of ₹7 lakh each before and after March 31 to avoid TCS application. The transfer of ₹7 lakh during FY 2024–25 followed by another ₹7 lakh during FY 2025–26 will prevent any TCS from being applied. The method requires extended time but enables you to use your foreign funds without any deductions.
2. Family members who have LRS limits can help you with your foreign exchange needs
Each resident individual under the Liberalised Remittance Scheme (LRS) gets to use ₹7 lakh per year for foreign transactions. Your spouse and parents can each use their ₹7 lakh LRS quota for foreign transactions. The process of transferring money abroad becomes fully compliant and effective when you document proper gifts from your account to theirs which allows you to send up to ₹28 lakh without TCS.
3. You can transfer money abroad from your NRO account after obtaining NRI status
You can transfer money abroad from your NRO account without TCS when you become a Non-Resident Indian after spending at least 183 days outside India under FEMA regulations. You need to submit Forms 15CA and 15CB through a Chartered Accountant for this process. The Liberalised Remittance Scheme (LRS) does not apply to these transfers so you will not need to pay TCS when you move abroad permanently.
4. You should accept the TCS payment if you need to make large transfers right away
You should pay TCS temporarily when making large transfers. The TCS payment should be documented in Form 26AS before you use the TCS certificate (Form 27D) to request a refund through your ITR. The processing time for ITR refunds after submission takes between 4 to 6 weeks.
5. Stay away from using unofficial methods to transfer money
All international money transfers require PAN information because they become traceable through their link to PAN numbers. The use of unapproved methods for money transfer will result in both FEMA penalties and increased chances of official investigation.
Your international money transfers will stay compliant with tax laws when you plan them correctly. A Chartered Accountant will help you organize LRS transactions to reduce or eliminate the 20% TCS payment requirement.
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