20% TCS on foreign remittances under LRS: Finance Ministry answers five important questions

The Ministry of Finance has issued Frequently Asked Questions regarding Tax Collection at Source (TCS) on foreign remittance through the Liberalised Remittance Scheme (LRS). The ministry released the FAQs on May 18, 2023.

This came after the ministry amended rules under the Foreign Exchange Management Act (FEMA) to bring international credit card spending under the LRS. On May 16, 2023, the Ministry of Finance issued a notification mentioning to omit rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000. These shall come into force on the date of their publication in the Official Gazette, according to the notification.

Also Read: Credit card forex payments under LRS: You have to pay 20% TCS on these transactions from July 1, 2023


Budget 2023 increased the TCS for foreign remittances under the LRS from 5 per cent to 20 per cent, except for education and medical purposes.

Here is a look at the FAQs on TCS on foreign remittance through LRS released by the finance ministry

Why is TCS required to be collected?
Section 206C of the Income-Tax Act 1961 provides for TCS in the business of trading in alcohol, liquor, forest produce, scrap etc. Sub-section (1G) of the aforesaid section provides for TCS on foreign remittance through the Liberalised Remittance Scheme and on the sale of overseas tour packages.

Is TCS applicable to all remittances made abroad?
No. Only such remittances which are covered under LRS are liable to TCS. These have been detailed in the answer to Q (5) in Part B of the clarifications.

What is the reason behind the increase in rates of TCS?
The reasons for the amendment are:

• The payment of TCS is not a final tax
• If the TCS payee is a taxpayer, he can claim credit for the TCS as his tax payment against regular income and adjust it against the advance tax etc., payments accordingly.
• If the TCS is of a person not being a taxpayer, then the 20% rate on such presumed income is not high. The tax rate slab of 20% starts in the new regime for incomes over Rs 12 lacs and is 30% for incomes over Rs 15 lacs.
• Instances have come to notice where the LRS payments are disproportionately high when compared to the disclosed incomes
• No changes in medical or Education expenses- Position stays as it was before the Finance Act 2023.
• Primary Impact only on investment in assets such as real estate, bonds, stocks outside India by HNI and tour travel packages or gifts to non-residents.
• Those individuals remitting from their own funds are normally expected to be higher-income taxpayers, and for those remitting through institutional loans for education, a concessional rate of 0.5 per cent is provided.

What are the changes or increases in rates of TCS?
The TCS rates with the changes brought about in Finance Act 2023 are tabulated as under,

(i) Remittance for the purpose of any education [NO CHANGE]

	Old Position		After Finance Act 2023
	(up to 30.6.23)		(from 1.7.2023)
Nature	Threshold	Rate	Threshold	Rate
If the amount being remitted out is a loan obtained from any financial institution as defined in section 80E	7 lakh	0.50%	7 lakh	0.50%
Remittance is not out of loan from a financial institution	7 lakh	5%	7 lakh	5%

(ii) Remittance for the purpose of any medical Treatment [NO CHANGE]

	Old Position		After Finance Act 2023
	(up to 30.6.23)		(from 1.7.2023)
Nature	Threshold	Rate	Threshold	Rate
Remittance is for Medical Treatment	7 lakh	5%	7 lakh	5%

iii) Sale of Overseas tour package

	Old Position		After Finance Act 2023
	(up to 30.6.23)		(from 1.7.2023)
Nature	Threshold	Rate	Threshold	Rate
Remittance is for the purchase of a tour package	Nil	5%	Nil	20%

iv) Any other Remittance (for Bonds, shares, real estate gifts etc.)

	Old Position		After Finance Act 2023
	(up to 30.6.23)		(from 1.7.2023)
Nature	Threshold	Rate	Threshold	Rate
Remittance is for any other purpose	7 lakh	5%	Nil	20%

What is the impact on travel and incidental expenses related to education and medical treatment?
For TCS on remittance for travel and incidental expenses related to education and medical treatment, the rates of TCS as applicable to remittances for education and medical treatment, respectively, shall apply. A detailed clarification will be issued separately.