TCS limit hiked for Foreign Remittances in Budget 2025

The Finance Minister proposed welcoming changes to TDS and TCS rules with the goal of rationalizing threshold limits, providing relief, and reducing the compliance burden for both taxpayers and deductors.

FM has increased the tax collected at source limit from Rs.7 lakh to Rs.10 lakh in Budget 2025. Aside from raising the TCS threshold for foreign remittances, the government has proposed eliminating TCS foreign remittances for education purposes.

According to the announcement in the Budget 2025, “The threshold to collect tax at source (TCS) on remittances under RBI’s Liberalized Remittance Scheme (LRS) is proposed to be increased from Rs.7 lakh to Rs.10 lakh. I further recommend that TCS be removed from remittances for educational purposes if they are made through a loan from a specified financial institution.”

TCS stands for tax collected at source. The relief come after the Union Budget 2023-23 increased the TCS on foreign remittances to 20% from 5% previously, except in certain situations. The revised TCS rates took effect on October 1, 2023, with a threshold restriction. This came after the Finance Ministry faced harsh criticism from both ordinary citizens and industry specialists.

Current TCS Applicability Under Income Tax Rules

According to current income tax rules, all outward foreign remittances, except those for education and medical purposes, are subject to a 20% TCS if the sum exceeds Rs.7 lakh in a given financial year. This includes purchasing equity shares in a foreign company, making e-commerce purchases from foreign websites, etc. A TCS of 5% is applicable to an overseas tour package if the cost is less than Rs.7 lakh; if the amount exceeds that, a TCS of 20% applies.

If the foreign outward remittance amount exceeds Rs.7 lakh in a financial year, a 5% TCS applies for medical expenses. In the case of education, the source of funding determines the TCS rate. If the loan is taken from a financial institution covered by Section 80E, no TCS is levied on amounts up to Rs.7 lakh. If it is higher, a TCS of 0.5% will be applied. On the other hand, if an individual supports his or her own education or obtains an education loan from a financial institution that not covered by Section 80E, the TCS rate will be 5%.

TCS Applicable on Debit and Forex Card Payments

Individuals should be aware that TCS applies to debit and forex card payments. However, TCS at the rate of 20% will apply only if payments exceed Rs.7 lakh in a financial year. Currently, TCS does not cover foreign payments made using credit cards.

According to a press release issued by the Finance Ministry on June 28, 2023, “To allow ample time for banks and card networks to build necessary IT-based solutions, the Government has decided to postpone the implementation of its 16th May 2023 e-gazette notification. This would imply that transactions conducted using international credit cards while abroad would not be counted as LRS (liberalized remittance scheme), and hence would not be subject to TCS. The Press Release dated May 19, 2023 has superseded.”