Section 206C(1G) of the Income Tax Act requires the collection of Tax Collected at Source (TCS) by an Authorised Dealer on foreign remittances made by a buyer under the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India and on overseas tour packages. These packages include costs related to foreign travel, hotel stays, lodging, boarding, and associated expenses. TCS must be collected by the Authorised Dealer at the time of debiting the amount payable by the buyer or at the time of receiving such an amount from the buyer, whichever occurs earlier. For this section, an authorised dealer refers to a person authorised under Section 10(1) of the Foreign Exchange Management Act, 1999, to deal in foreign exchange or foreign securities. The term “overseas tour programme package” means any tour package that involves travel to one or more countries or territories outside India and includes expenses for travel, hotel stays, boarding, lodging, or any other similar or related expenditure.
Liberalised Remittance Scheme of RBI
Under the Liberalised Remittance Scheme, Authorised Dealers may allow resident individuals to remit up to USD 2,50,000 per financial year for any permissible current or capital account transaction or a combination of both. The scheme does not apply to corporates, partnership firms, Hindu Undivided Families, or trusts. Resident individuals must provide their Permanent Account Number and submit Form A2 when purchasing foreign exchange under this scheme. The scheme applies to all resident individuals, including minors. If the remitter is a minor, Form A2 must be countersigned by the minor’s natural guardian. Remittances under the scheme may be consolidated for family members provided each member complies with the scheme’s terms. However, for capital account transactions such as opening overseas bank accounts or investments, consolidation is not permitted unless the other family members are co-owners or co-partners in the investment or account. An investor who has remitted funds under the scheme may retain or reinvest income earned from investments. If the income is not reinvested, any received, realised, or unused foreign exchange must be repatriated and surrendered to an authorised person within 180 days of such receipt, realisation, or return to India.
Permissible Current Account Transactions under LRS
Rule 5 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, allows resident individuals to avail foreign exchange for certain current account transactions under Schedule III, within the LRS limit of USD 2,50,000 per financial year without prior approval from the Reserve Bank of India. Permissible transactions include private visits to any country other than Nepal and Bhutan, gifts or donations, going abroad for employment, emigration, maintenance of close relatives, business travel,, including participation in conferences, education, and medical treatment.
Meaning of the Term Relative under LRS
Section 2(77) of the Companies Act, 2013, defines a relative as someone related to another person in a specified manner. Rule 4 of the Companies (Specification of Definitions Details) Rules, 2014 provides the following relationships as qualifying a person as a relative. A person is considered a relative if they are part of the same Hindu Undivided Family, are spouses, or fall into specific familial relationships. These include father (including stepfather), mother (including stepmother), son (including stepson), son’s wife, daughter, daughter’s husband, brother (including stepbrother), and sister (including stepsister). This definition is important for transactions such as maintenance of relatives abroad, gifts, or loans extended under the LRS framework.
Permissible Capital Account Transactions under LRS
Resident individuals may undertake the following capital account transactions under the LRS. They may open foreign currency accounts abroad with banks, acquire immovable property overseas, or invest in overseas direct or portfolio investments according to the relevant Foreign Exchange Management rules, regulations, and directions. Individuals are also allowed to extend interest-free loans to Non-Resident Indians who qualify as relatives under the Companies Act, with a minimum maturity of one year. All such transactions must fall within the USD 2,50,000 LRS limit and adhere to RBI guidelines for capital account remittances.
Existing Income Tax Provisions for TCS under Section 206C(1G)
Under the previous provisions, a resident individual was exempt from TCS on LRS remittances up to Rs 7 lakhs per financial year until June 30, 2023. TCS was applicable at a rate of 5 percent on amounts exceeding this threshold. For education-related remittances funded through loans from approved financial institutions, the TCS rate was reduced to 0.5 percent. In the case of overseas tour packages, the TCS was collected at 5 percent with no exemption threshold. These provisions governed the treatment of TCS for LRS transactions up to mid-2023.
Budget 2023 Amendments for TCS under Section 206C(1G)
The Finance Act of 2023 introduced significant changes to the TCS provisions under Section 206C(1G). For LRS remittances other than those related to education and medical treatment, the TCS rate was increased from 5 percent to 20 percent starting July 1, 2023. This includes remittances for investments abroad, donations, gifts, living expenses for relatives, and overseas tour packages. There is no exemption threshold for these categories. Remittances for education and medical purposes continue to attract a 5 percent TCS if they exceed Rs 7 lakhs in a financial year, while education-related remittances funded by loans from approved financial institutions continue to be subject to a TCS of 0.5 percent. These TCS rates also apply to payments made directly to foreign educational or medical institutions and to incidental travel expenses, provided supporting documents are submitted. Previously, international credit card payments made by resident individuals while abroad were excluded from the LRS limit and TCS under Rule 7 of the FEM(CAT) Rules, 2000. However, this rule was omitted from May 16, 2023, to ensure uniform treatment across all foreign exchange drawal methods. From that date, international credit card payments by resident individuals while abroad are also included in the LRS limit and are subject to TCS. The applicable TCS rate is 5 percent up to June 30, 2023, and 20 percent or 5 percent, as per the category, from July 1, 2023. A notification dated May 19, 2023, from the CBDT introduced a threshold exemption of Rs 7 lakhs for credit and debit card payments by resident individuals while abroad.
TCS Provisions under Section 206C(1G) at a Glance
A summary of TCS applicability under different LRS categories helps clarify the impact on various remittance scenarios. For education-related remittances funded by loans from approved financial institutions, the TCS limit is Rs 7 lakhs, and any remittance above this threshold attracts a TCS of 0.5 percent both before and after July 1, 2023. When the remittance is out of personal funds and not via education loans, a 5 percent TCS is levied on remittances above Rs 7 lakhs. For travel and incidental expenses related to education and medical treatment, the same 5 percent rate applies after the exemption limit.
In the case of medical treatment, authorised dealers may release up to USD 2,50,000 without insisting on cost estimates from hospitals or doctors. For remittances above this amount, dealers may still release foreign exchange based on documentation. In such scenarios, the Rs 7 lakh exemption applies, and TCS is levied at 5 percent on any excess.
When a person falls ill abroad, foreign exchange for treatment can also be accessed without prior approval from the RBI. An additional USD 2,50,000 can be released for an attendant accompanying the patient. The TCS provisions in these cases remain the same—5 percent above Rs 7 lakhs.
For employment abroad, the LRS limit is USD 2,50,000, but there is no exemption threshold. TCS applies at 5 percent up to June 30, 2023, and 20 percent from July 1, 2023. The same rates and exemption rules apply to emigration-related remittances. For gifts and interest-free loans extended to Non-Resident Indian relatives, TCS is applied at the same rate and without a threshold exemption.
Investments in foreign shares, bonds, securities, and real estate are covered under capital account transactions. These attract 5 percent TCS before July 1, 2023, and 20 percent thereafter, without any exemption.
Business trips undertaken by sole proprietors are also covered under LRS. These draw the same 5 percent TCS rate before July 1, 2023, and 20 percent after that. However, when an employee travels abroad on behalf of an employer, the expenses are considered business expenses of the organisation and do not fall under the LRS framework.
Private visits to foreign countries, except Nepal and Bhutan, fall under the LRS limit and attract a TCS of 5 percent until June 30, 2023, and 20 percent afterward. All expenses related to overseas tour packages, including rail, road, and water transportation outside India and hotel or lodging costs abroad, are included in the LRS framework. These are subject to the same TCS rates and do not enjoy any exemption limit.
Clarifications from the Ministry of Finance on the LRS
The Ministry of Finance has issued various clarifications regarding the implementation and scope of the Liberalised Remittance Scheme. Under the LRS, all resident individuals, including minors, are allowed to remit up to USD 2,50,000 per financial year for permitted current or capital account transactions. Corporations, HUFs, trusts, and partnership firms are not eligible under this scheme. Remittances under LRS have been steadily increasing, from USD 12.68 billion in the financial year 2021–22 to more than USD 24 billion in 2022–23. Overseas travel accounts for over half of this amount.
The permitted current account transactions under LRS are outlined in Rule 5 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000. These include private visits to foreign countries, gifts and donations, employment abroad, emigration, maintenance of close relatives living abroad, travel for business, participation in conferences or specialised training, medical treatment, check-ups, accompanying a patient for medical treatment, and education abroad. Any other current account transaction permitted under Indian law also qualifies. All of these are subject to the USD 2,50,000 annual cap.
The government clarified that transactions above this limit require prior approval from the RBI, even if they are listed under permitted categories. These rules ensure proper monitoring of cross-border foreign exchange movements and help preserve the country’s foreign exchange reserves.
Exclusions from TCS in Foreign Remittances
There are certain transactions that are specifically excluded from TCS applicability under Section 206C(1G). Any foreign remittance amounting to less than Rs 7 lakhs in a financial year does not attract TCS for medical and educational purposes. TCS is not applicable when the remittance is being used for education or medical treatment, as long as it remains under the Rs 7 lakh threshold. Similarly, purchases of goods and services from within India—even when the goods originate from foreign websites—are not subject to TCS under this section. This exclusion applies because such transactions do not fall within the scope of LRS or overseas tour packages.
Company-sponsored or business trips undertaken by employees also fall outside the purview of LRS. In such cases, the expenses are borne by the business entity, not the employee, and thus do not qualify as LRS remittances. Consequently, no TCS applies to these transactions. These residual current account transactions are verified by Authorised Dealers for genuineness and permitted without a monetary ceiling, subject to adherence to RBI’s general guidelines.
These exclusions clarify the distinction between personal and business-related remittances and ensure that the compliance burden does not extend to transactions not intended to be covered by LRS.
Decoding Nuances of TCS under Section 206C(1G)
A common query relates to whether the Rs 7 lakh exemption threshold should be applied per Authorised Dealer or remitter. The exemption limit applies to the individual remitter, not to each authorised dealer. The Reserve Bank of India monitors aggregate remittances based on the PAN of the resident individual. Therefore, if a person remits funds through multiple banks or international debit or credit cards, the Rs 7 lakh threshold is considered cumulatively.
This interpretation is critical to ensuring compliance because if the threshold were per authorised dealer, it could be bypassed by splitting transactions across multiple banks or financial institutions. The PAN-based tracking helps prevent this and ensures that the aggregate annual LRS limit and TCS liability are properly calculated.
Another important point of clarification relates to the use of international credit or debit cards for purchasing goods and services from foreign websites while physically being in India. Payments for digital services like subscriptions or software licenses, or physical goods ordered from international e-commerce websites, are not covered under LRS. Consequently, these transactions are not subject to TCS under Section 206C(1G).
However, if the credit or debit card payment is made for purposes such as private foreign travel, foreign education, medical expenses abroad, or any of the other categories listed under Rule 5 of the FEM(CAT) Rules, the transaction falls under LRS and becomes liable for TCS. The distinction hinges on the nature and purpose of the transaction, not merely on the mode of payment.
TCS on LRS Payments Made Through Credit Cards
Earlier, the usage of international credit cards for transactions in foreign countries was not covered under LRS. The Ministry of Finance, through a notification dated 16th May 2023, included international credit card usage under LRS and made it subject to the TCS provisions. However, the government later rolled back this provision temporarily. As per the press release issued on 28th June 2023, it was clarified that transactions through international credit cards while being overseas would not be considered under LRS and hence, would not be subject to TCS. This rollback will remain in force till further notification. Thus, till further notice, the usage of international credit cards overseas will not attract TCS under section 206C(1G).
TCS on International Credit Card Payments by Employees
A clarification was issued by the CBDT in the form of FAQs on 30th June 2023. It clarified that if an employee incurs expenditure through an international credit card while on an official overseas tour and the payment is made by the employer, then such usage would not be counted under LRS and no TCS would be applicable. Therefore, if the employer directly pays the credit card bills related to official foreign travel expenses, TCS will not apply.
When to Deduct TCS Under Section 206C(1G)
Under section 206C(1G) of the Income Tax Act, an authorized dealer who receives an amount or aggregate amounts of ₹7 lakh or more in a financial year for remittance out of India under LRS is required to collect TCS. The TCS must be collected at the time of remittance. Similarly, a seller of an overseas tour package is also liable to collect TCS from the buyer at the time of receiving the amount towards such a package. The liability to collect TCS arises at the time of receipt of the amount or at the time of debiting the buyer’s account, whichever is earlier.
TCS Payment and Return Filing Procedure
The person responsible for collecting TCS (authorized dealer or seller) is required to deposit the TCS amount to the government within the specified timelines. The due date for TCS payment is the 7th of the following month in which TCS was collected. The collector is also required to file quarterly TCS returns in Form 27EQ. The due dates for filing Form 27EQ are:
- For April–June: 15th July
- For July–September: 15th October
- For October–December: 15th January
- For January–March: 15th May
Failure to deposit TCS or file the returns within the prescribed time can result in interest, penalties, and other consequences under the Income Tax Act.
TCS Certificate Issuance (Form 27D)
After depositing TCS and filing the TCS return, the collector is required to issue a TCS certificate in Form 27D to the person from whom the tax was collected. This certificate serves as proof that the TCS has been collected and deposited with the government. Form 27D must be issued within 15 days from the due date of filing the TCS return. This certificate can be used by the buyer or remitter to claim credit while filing their income tax return.
Adjustment and Refund of TCS
TCS collected under section 206C(1G) is not a final tax. It can be adjusted against the total tax liability of the individual while filing the income tax return. If the individual’s total tax liability is less than the total TCS collected, the excess TCS can be claimed as a refund. The credit for TCS can be claimed by matching the TCS entries in the Form 26AS (Annual Tax Statement) of the taxpayer. If there is any discrepancy or mismatch, the taxpayer can follow up with the collector to rectify it.
Exceptions to TCS Provisions Under Section 206C(1G)
There are certain exceptions where TCS under section 206C(1G) does not apply. These include remittances made for education and medical treatment, subject to thresholds and conditions discussed earlier. Additionally, TCS is not applicable on remittances below ₹7 lakh in a financial year. It is also not applicable to business-related remittances or if the remitter is otherwise exempt under specific provisions of the Income Tax Act.
Clarification for Multiple Remittances
In cases where an individual makes multiple foreign remittances in a financial year under LRS, the threshold of ₹7 lakh is considered cumulatively. For example, if a person remits ₹4 lakh in April and ₹5 lakh in September for different purposes under LRS (except for education/medical treatment), the total becomes ₹9 lakh. In such a case, TCS will be applicable on ₹2 lakh, which exceeds the ₹7 lakh threshold, unless the entire amount is towards education or medical purposes, which have separate lower rates.
TCS Applicability for Non-Residents and Minors
If a remitter is a non-resident or a minor child, and the remittance is made under the LRS using the PAN of a resident parent/guardian, TCS applicability will be evaluated about the PAN used. It is important that the correct PAN is quoted and the same is updated in Form 26AS to avoid any mismatch. Even in such cases, if the total remittance exceeds ₹7 lakh in a financial year, TCS will apply.
Examples of TCS Calculation Scenarios
Here are a few practical examples of how TCS applies:
- Example 1: Mr. A remits ₹10 lakh for investment abroad. TCS @20% applies on the full ₹10 lakh as the purpose is not education or medical treatment. TCS amount: ₹2 lakh.
- Example 2: Ms. B remits ₹8 lakh for her daughter’s education and furnishes Form A2 and a loan certificate from a financial institution. TCS @0.5% applies on ₹1 lakh (₹8 lakh – ₹7 lakh). TCS amount: ₹500.
- Example 3: Mr. C books an overseas tour package for ₹12 lakh. TCS @5% is collected on the full amount. TCS amount: ₹60,000.
These examples demonstrate the differing rates and thresholds based on purpose and documentation.
Compliance Obligations for Authorized Dealers and Tour Operators
Authorized dealers (banks) and sellers of overseas tour packages have important compliance responsibilities. They must:
- Identify remittances and sales subject to TCS
- Collect the correct rate of TCS at the time of transaction.
- Deposit TCS with the government within the due dates
- File quarterly returns in Form 27EQ
- Issue TCS certificates in Form 27D to customers
Non-compliance may lead to penalties, disallowance of expenses, and prosecution under the Income Tax Act.
Impact on Taxpayers and Strategic Considerations
Taxpayers remitting funds abroad must be aware of the additional cash outflow caused by TCS. While TCS is adjustable against the final tax liability, it affects liquidity in the short term. It is essential to plan remittances in a way that considers the TCS impact, particularly when large sums are involved. Keeping documentation ready (especially for education and medical remittances) can help in availing lower TCS rates. It is also advisable to monitor Form 26AS regularly to ensure timely credit of TCS.
Conclusion
The introduction and subsequent amendments to section 206C(1G) have significantly altered the landscape of foreign remittances and overseas spending. With enhanced TCS rates, broadened coverage, and a focus on compliance, individuals and businesses must be cautious and well-informed. Though the collected tax is not a final burden and can be adjusted or refunded, the upfront deduction makes planning essential. Keeping track of remittances, maintaining proper documentation, and understanding the nature of expenses will help taxpayers manage their overseas transactions more efficiently and remain compliant with Indian tax laws.