Foreign Remittance Tax: Is There Any Tax on Foreign Remittance?

If you want to remit any amount out of India, you must collect tax at source as per the Income Tax Act, 1961. It was introduced by the government to curb the tax evasion. In this article, we will discuss the key aspects of TCS on foreign remittance in India, including exemptions, calculation methods, and ways to manage tax liabilities effectively.

Keep reading to find out!   

TCS on Foreign Remittance in India

When a person remits money to a foreign country, they are required to pay a certain percentage of the amount as Tax Collected at Source (TCS). The TCS is deposited with the government and will be reflected in your Form 26AS.

Exemptions

There will be no TCS if the amount being remitted out is a loan obtained from any financial institution, as defined in section 80E, for the purpose of pursuing any higher education.  

The table below depicts the new and old foreign remittance TCS rates for different types of remittances:

Let us understand the calculation of the foreign remittance TCS with the help of an example. Suppose you wish to invest Rs. 13 lakhs in a foreign asset and approach a money transfer agency for the same.

In this case, a 20% TCS on foreign remittance will be applicable on the amount exceeding Rs. 10 lakhs, i.e., Rs. 3 lakhs. So, the money transfer agency will collect Rs. 60,000 (20% of Rs. 3 lakhs) from you as TCS and you will have to make a total payment of Rs. 13,60,000 to complete your investment.

How to Transfer Money from India to the USA without Paying Taxes?

Non-resident Indians (NRIs) can repatriate a maximum of $1 million without paying any tax on money transfers from India to the USA. As per Section 206C(1G) of the Income Tax Act, there is no applicable TCS when NRIs transfer money from their NRO to their NRE account.

This benefit allows NRIs to remit their income in India, like salary, dividends, business profits, rent, etc., via their NRO accounts. However, transactions of these types will need special approval from the RBI. 

How to Transfer Money from the USA to India without Paying Taxes?

There is no way to completely exempt tax on money transfers from the USA to India. According to American laws, you can remit a maximum of $14,000, after which gift taxes will be applicable. 

How to Save on Foreign Remittance Taxes? 

The increased rate for foreign remittance tax in India can make overseas money transfers more expensive. However, there are a few methods by which you can reduce your overall taxable income. When TCS is applicable for any type of transaction, the money is collected by banks. So, you can adjust your total TCS amount depending on your tax liability. 

For instance, let’s say you remit Rs. 5 lakh to a relative living in a foreign country. Under such circumstances, there will be a TCS of Rs. 1 lakh. Now, while filing your IT returns, you find a tax liability of Rs. 2.5 lakh. Under such circumstances, you can reduce your tax amount by adjusting it with the payable TCS. 

Thus, your net tax liability will be reduced to Rs. 1.5 lakh. Banks generally provide a TCS certificate at the time of deduction. You can use it to claim TCS refunds when filing your Income Tax Returns.

Now, if you do not have taxable income, you can claim the TCS amount deducted as a refund. Moreover, you are also liable for the same if your total tax liability is lesser than the TCS amount. 

Note – There is no interest applicable on the blocked TCS amount.  

Final Word

The increase in tax on foreign remittances in India may be an effective measure to get proper tax payments from individuals who file improper returns. According to the Finance Secretary, T V Somanathan, many individuals make high-value foreign remittances to buy property in foreign countries. But, as these transactions are not reflected on their ITRs, the Indian Government cannot tax them appropriately. So, new tax measures have been implemented to curb the same.