Table of Contents
One. What Is TCS on Foreign Remittance? Two. Who Collects TCS Under Section 206C(1G)? Three. TCS Rates on LRS Remittances (FY 2026-27) Four. Budget 2026 Changes: What Reduced Five. How the Rs 10 Lakh Threshold Works Six. TCS Calculations with Examples Seven. Education Remittances: Loan vs Self-Funded Eight. Overseas Tour Package TCS Rules Nine. How to Claim TCS Refund in Your ITR Ten. Compliance for Authorized Dealers and Tour Operators Eleven. Penalties for Non-Collection Twelve. Frequently Asked Questions
Key Takeaways
Budget 2026 reduced TCS on foreign remittances for education, medical, and overseas tour purposes from 5% to 2%, effective April 1, 2026.
The aggregate threshold for TCS-free remittances under LRS has been raised from Rs 7 lakh to Rs 10 lakh per financial year.
Education remittances funded through a loan from a recognized financial institution attract zero TCS regardless of amount.
Overseas tour packages attract a flat 2% TCS from the first rupee with no threshold exemption.
Other LRS remittances (investments, gifts, property abroad) continue to attract 20% TCS above the Rs 10 lakh threshold.
TCS paid is fully adjustable against your income tax liability or refundable through your ITR filing.
Every time a resident Indian sends money abroad under the Reserve Bank of India's Liberalised Remittance Scheme (LRS), the bank or tour operator collecting the remittance must collect Tax at Source (TCS) under Section 206C(1G) of the Income-tax Act. This is not an additional tax. It is an advance tax payment that is adjusted against your final income tax liability when you file your return.
The rates and thresholds have changed multiple times since TCS on LRS was first introduced in 2020. Budget 2026, presented in February 2026, brought the most significant relief yet, cutting rates for education, medical, and overseas tour purposes. This guide covers the current rules as they apply from April 1, 2026.
What Is TCS on Foreign Remittance?
TCS on foreign remittance is a tax collection mechanism under Section 206C(1G). When a resident individual sends money abroad through an authorized dealer (typically a bank), the authorized dealer collects TCS from the remitter at prescribed rates.
The collected TCS is deposited with the government and credited to the remitter's PAN. The remitter can then claim this amount as a credit against their income tax liability when filing their ITR.
TCS applies specifically to remittances made under the Liberalised Remittance Scheme (LRS), which allows resident individuals to remit up to USD 2,50,000 per financial year for permitted current and capital account transactions.
The key distinction from TDS: in TDS, the payer deducts tax before releasing payment. In TCS, the collector (bank or tour operator) collects tax from the remitter over and above the remittance amount.
Who Collects TCS Under Section 206C(1G)?
Two categories of entities are required to collect TCS on foreign remittances:
Authorized Dealers registered with the Reserve Bank of India. These are banks and financial institutions authorized to deal in foreign exchange. When you walk into your bank to initiate a wire transfer or buy foreign currency for travel, the bank is the authorized dealer that collects TCS.
Tour Operators selling overseas tour packages. If you buy a package tour from an operator that includes travel, accommodation, boarding, or any combination of these outside India, the tour operator must collect TCS. This applies whether you book directly or through an online travel aggregator.
The TCS is collected at the time of debiting the amount from the remitter's account or at the time of receipt of the amount, whichever is earlier.
TCS Rates on LRS Remittances (FY 2026-27)
Tax Rate Chart
TCS Rates on Foreign Remittance Under LRS (FY 2026-27)
Effective April 1, 2026: Budget 2026 reduced rates for education, medical, and overseas tour purposes
Education (funded by loan from financial institution)
No TCS regardless of amount: loan must be from a recognized financial institution under Section 80E
Education (self-funded) above Rs 10 lakh
No TCS up to Rs 10 lakh aggregate in FY: 2% on amount exceeding threshold
Medical Treatment above Rs 10 lakh
No TCS up to Rs 10 lakh aggregate in FY: 2% on amount exceeding threshold
Overseas Tour Package (any amount)
No threshold exemption: TCS from the first rupee
Other Purpose (investment, gift, maintenance) above Rs 10 lakh
No TCS up to Rs 10 lakh aggregate in FY: 20% on amount exceeding threshold
Source: Section 206C(1G) of the Income-tax Act, 1961, as amended by Finance Act 2026
The Rs 10 lakh threshold is computed on an aggregate basis across all LRS remittances in a financial year, regardless of purpose. However, overseas tour package TCS is calculated separately from the first rupee.
If the remitter does not furnish a PAN or Aadhaar number, TCS is collected at 5% instead of 2% for education and medical purposes, and at the higher applicable rate for other categories.
Budget 2026 Changes: What Reduced
Budget 2026 made three significant changes to TCS on foreign remittances, all effective from April 1, 2026:
Rate reduction for education and medical remittances. The TCS rate on self-funded education and medical remittances above the threshold was reduced from 5% to 2%. This brings meaningful relief for families sending children abroad for higher education or seeking medical treatment overseas.
Rate reduction and simplification for overseas tour packages. The earlier structure charged 5% up to Rs 7 lakh and 20% above Rs 7 lakh on overseas tour packages. Budget 2026 replaced this with a flat 2% rate on the entire amount with no threshold. This is simpler to calculate and significantly cheaper for high-value packages.
Threshold increase from Rs 7 lakh to Rs 10 lakh. The aggregate amount below which no TCS is collected on LRS remittances (other than overseas tour packages) was raised from Rs 7 lakh to Rs 10 lakh. This means smaller remittances for family maintenance, gifts, or investment purposes no longer attract TCS.
The rate for other purposes (investments, gifts, property purchases, maintenance of close relatives abroad) remains unchanged at 20% above the threshold.
Previous rates vs current rates comparison:
For a self-funded education remittance of Rs 20 lakh:
Under the old rules (FY 2025-26): 5% on Rs 13 lakh (amount above Rs 7 lakh threshold) = Rs 65,000 TCS.
Under the new rules (FY 2026-27): 2% on Rs 10 lakh (amount above Rs 10 lakh threshold) = Rs 20,000 TCS.
The effective TCS burden drops by nearly 70% in this example.
How the Rs 10 Lakh Threshold Works
The Rs 10 lakh threshold is cumulative. It applies to the total of all LRS remittances made by an individual in a financial year, across all banks and all purposes (except overseas tour packages, which have no threshold).
If you send Rs 5 lakh for your child's education in April and Rs 8 lakh for investment in September, the total is Rs 13 lakh. TCS applies on Rs 3 lakh (the amount above Rs 10 lakh).
The authorized dealer relies on a declaration from the remitter regarding past remittances in the financial year. If you use multiple banks for LRS transfers, each bank may not know about your remittances through other banks. You are required to declare the aggregate amount remitted during the year. Making a false declaration to avoid TCS can attract penalties under the Income-tax Act.
For overseas tour packages, there is no threshold. TCS at 2% applies from the first rupee. This is because tour packages were treated differently by Budget 2026 to simplify compliance for tour operators who deal with multiple bookings per customer.
TCS Calculations with Examples
Example 1: Self-funded education remittance
Ramesh sends Rs 25 lakh to his son's university in Australia during FY 2026-27. He is paying from his own savings, not through an education loan.
First Rs 10 lakh: No TCS. Remaining Rs 15 lakh: TCS at 2% = Rs 30,000. Total amount debited from Ramesh's account: Rs 25,30,000.
Ramesh can claim the Rs 30,000 TCS credit when filing his ITR for AY 2027-28.
Example 2: Education funded through loan
Priya takes an education loan from SBI to fund her MBA in the UK. The bank disburses Rs 30 lakh directly as a foreign remittance to the university.
Since the remittance is funded by an education loan from a recognized financial institution, TCS is NIL regardless of the amount.
Priya pays zero TCS.
Example 3: Overseas tour package
The Sharma family buys a European tour package costing Rs 6 lakh from a tour operator.
TCS at 2% on Rs 6 lakh = Rs 12,000. Total paid to the tour operator: Rs 6,12,000.
Note: Even though Rs 6 lakh is below the Rs 10 lakh LRS threshold, the overseas tour package category has no threshold exemption.
Example 4: Investment in foreign shares
Deepak remits Rs 50 lakh to his US brokerage account for purchasing foreign stocks.
First Rs 10 lakh: No TCS. Remaining Rs 40 lakh: TCS at 20% = Rs 8,00,000. Total debited: Rs 58,00,000.
This is why the 20% rate on non-education, non-medical, non-tour remittances is the highest: the government uses it to track capital outflows.
Example 5: Mixed purposes in one year
Anita sends Rs 6 lakh for her daughter's education in June, buys a Thailand tour package of Rs 2 lakh in October, and sends Rs 5 lakh as a gift to her brother in Canada in January.
Education (Rs 6 lakh): Below Rs 10 lakh threshold (no prior LRS in the year). TCS = NIL. Tour package (Rs 2 lakh): Separate category, no threshold. TCS at 2% = Rs 4,000. Gift (Rs 5 lakh): Cumulative LRS now Rs 6 lakh + Rs 5 lakh = Rs 11 lakh. TCS at 20% on Rs 1 lakh (amount above Rs 10 lakh) = Rs 20,000.
Total TCS paid: Rs 24,000.
Education Remittances: Loan vs Self-Funded
The distinction between loan-funded and self-funded education remittances is critical because the TCS treatment is completely different.
Loan-funded education (zero TCS): If the remittance for education is sourced from an education loan obtained from a financial institution as defined under Section 80E of the Income-tax Act, no TCS is collected regardless of the amount. This covers loans from scheduled banks, notified financial institutions, and approved charitable institutions.
Self-funded education (2% above Rs 10 lakh): If you are paying from your own savings, fixed deposits, or any source other than a recognized education loan, TCS at 2% applies on the amount exceeding Rs 10 lakh in the financial year.
Partial loan, partial self-funded: If part of the education expenses are met from a loan and part from personal funds, TCS applies only on the self-funded portion that exceeds the threshold. You need to provide the loan disbursement letter to the authorized dealer as proof.
Documentation required: The bank will typically ask for the education loan sanction letter, disbursement proof, and a declaration that the remittance is for education purposes funded by the loan. Keep these documents ready to avoid unnecessary TCS collection.
Overseas Tour Package TCS Rules
Tour operators selling overseas packages bear a specific compliance obligation. Every sale of an overseas tour package to a buyer triggers TCS at 2% on the full package value.
What qualifies as an overseas tour package? Any package that includes one or more of: passage to a destination outside India, hotel accommodation outside India, boarding or lodging outside India. It does not matter whether the package is all-inclusive or itemized.
Online bookings and aggregators: If you book an overseas tour through an online travel aggregator (MakeMyTrip, Booking.com, etc.), the entity selling the package is responsible for collecting TCS. For Indian aggregators, this is typically the platform. For foreign platforms, the authorized dealer processing the payment may collect TCS.
Business travel: TCS on overseas tour packages applies to individuals and Hindu Undivided Families only. A company booking overseas travel for its employees through a tour operator is not subject to TCS under this provision, though the LRS framework itself is restricted to resident individuals.
How to Claim TCS Refund in Your ITR
TCS collected on your foreign remittances is not a final tax. It is an advance tax payment that you recover when filing your Income Tax Return. Here is the process:
Step 1: Verify TCS in Form 26AS and AIS
Log in to the income tax e-filing portal. Navigate to Form 26AS under the e-File menu. Check Part B (Tax Collected at Source) for entries matching your PAN. Cross-verify with the Annual Information Statement (AIS), which also shows TCS details.
Every rupee of TCS deposited against your PAN by the authorized dealer or tour operator should appear in Form 26AS. If it does not, contact the collector (bank or tour operator) and ask them to file a correction in Form 27EQ.
Step 2: Report TCS in Schedule TCS of your ITR
When filing your ITR, report the TCS details in Schedule TCS (Tax Collected at Source). Enter the TAN of the collector, the amount collected, and other details as shown in Form 26AS.
Step 3: Adjustment against tax liability
The total TCS claimed is added to your prepaid taxes (along with TDS and advance tax). If your total prepaid taxes exceed your tax liability, the excess is refunded to your bank account after the return is processed.
Step 4: Timeline for refund
Refunds are typically processed within four to six weeks after successful e-verification of the ITR. If your total income is below the taxable threshold, the entire TCS amount is refunded.
Common mistake: Filing the ITR for the wrong assessment year. TCS collected during FY 2026-27 should be claimed in the ITR for AY 2027-28.
Compliance for Authorized Dealers and Tour Operators
If you are an authorized dealer (bank or forex dealer) or a tour operator, you have specific TCS collection and deposit obligations:
Collection timing: TCS must be collected at the time of debiting the remitter's account or at the time of receipt of the amount, whichever is earlier.
Deposit timeline: TCS collected during a month must be deposited with the government by the 7th of the following month. For March collections, the due date is April 30.
Form 27EQ: Quarterly TCS returns must be filed in Form 27EQ within the following due dates: April to June: July 15. July to September: October 15. October to December: January 15. January to March: May 15.
Form 27D: A TCS certificate in Form 27D must be issued to the remitter within 15 days from the due date of filing the quarterly return.
Record keeping: Maintain records of remitter PAN, purpose of remittance, aggregate remittances in the financial year, and declarations received from remitters regarding previous remittances.
Penalties for Non-Collection
An authorized dealer or tour operator who fails to collect TCS faces the following consequences:
Disallowance of expenditure: Under Section 40(a)(ia), the amount of TCS not collected is disallowed as a business expenditure in the hands of the collector.
Interest on late deposit: If TCS is collected but not deposited by the due date, interest at 1% per month (or part thereof) is levied from the date of collection to the date of deposit.
Penalty under Section 271CA: A penalty equal to the amount of TCS that was not collected can be imposed. This is in addition to the obligation to deposit the TCS amount itself.
Prosecution: In cases of willful failure, prosecution proceedings under Section 276BB can be initiated, with imprisonment up to seven years.
Frequently Asked Questions
Q: Is TCS an additional tax I have to bear permanently?
No. TCS is an advance tax payment. It is credited to your PAN and shows up in Form 26AS. You claim it as a credit when filing your ITR. If your tax liability is lower than the TCS paid, the difference is refunded to you.
Q: I am an NRI. Does TCS apply to me?
TCS under Section 206C(1G) applies only to resident individuals remitting under LRS. NRIs and persons resident outside India are not covered.
Q: My bank collected TCS but it does not show in Form 26AS. What should I do?
Contact your bank immediately. Ask them to verify that the TCS was deposited against the correct PAN and reported in Form 27EQ. If there is an error, the bank must file a correction return.
Q: Can I avoid TCS by splitting remittances across multiple banks?
The threshold is aggregate. You are required to declare your total LRS remittances for the year to each authorized dealer. Deliberately under-declaring to avoid TCS is a punishable offence.
Q: Does TCS apply to remittances for maintenance of close relatives abroad?
Yes. Sending money abroad for maintenance of family members is categorized under "other purpose" and attracts 20% TCS above the Rs 10 lakh threshold.
Q: I bought forex from a money changer for my overseas trip without a tour package. Does TCS apply?
Yes. Buying foreign currency from an authorized dealer for travel purposes is an LRS remittance. TCS applies at the applicable rate once your aggregate LRS remittances for the year cross Rs 10 lakh. The overseas tour package flat rate applies only when you buy a package from a tour operator.
Q: What if the total TCS collected exceeds my income tax liability for the year?
The excess TCS is refunded to your bank account after the income tax department processes your ITR. You can track the refund status on the e-filing portal.
Source: Section 206C(1G) of the Income-tax Act, 1961, as amended by the Finance Act 2026. RBI Master Direction on Liberalised Remittance Scheme. CBDT Circular on TCS rates effective April 1, 2026.
