Is There Any Tax on Foreign Remittance?

With globalisation and increasing cross-border transactions, foreign remittances have become a common part of many Indian financial activities. Whether it is for funding education abroad, sending monet to family, investing in overseas assets or travelling, people often wonder if there is any tax involved in transferring money out of India. 

The simple answer is yes – under specific conditions, tax may apply in the form of TDS on foreign remittance. The concept of Tax Deducted at Source(TDS) applies not just to domestic transactions but also to certain foreign remittances under the Liberalised Remittance Scheme (LRS) governed by the Reserve Bank of India (RBI).

Let’s break down what TDS on foreign remittance is, when it applies, applicable rates, exemptions, and what you need to know to stay compliant while remitting money abroad.

What Is Foreign Remittance?

Foreign remittance is the act of sending out money from India to a foreign country, wither by individuals or businesses. It includes: 

• Paying tuition fees for foreign education
  
• Transferring funds for family maintenance
  
• Investing in overseas stocks or properties
  
• Paying for international tours and travel
  
• Sending gifts or donations abroad

Under the RBI’s LRS, Indian residents are allowed to remit up to USD 250,000 per financial year for various permitted purposes.

Is There a Tax on Foreign Remittance?

Yes, since October 1, 2020, a tax collection mechanism was introduced in the form of TDS on foreign remittance under Section 206C(1G) of the Income Tax Act. This rule mandates that authorised dealers (typically banks) must collect TDS at the time of remittance if the amount exceeds certain thresholds.  Since October 1, 2023, personal remittances of any nature above 7 lakh rupees annually will incur a 20% TCS rate on the amount exceeding this threshold. 

TCS on Outward Remittance (LRS)

For resident Indians sending money abroad under the RBI’s Liberalised Remittance Scheme(LRS), the bank or service provider may levy TCS, not tds on foreign remittance, but it’s a withholding tax collected at source which can be claimed back.

Key updates effective April 2025:

• The threshold for applying TCS has increased from ₹7 lakh to ₹10 lakh per financial year
• Education remittances funded by loans from specified financial institutions are now exempt (0%) up to ₹10 lakh; amounts beyond that carry a 0.5% TCS 
• Medical remittances above ₹10 lakh attract a 5% TCS 
• Other purposes (e.g., investments, travel, property) above ₹10 lakh are subject to 20% TCS. 

How it works: TCS is deducted by your service provider during remittanc and reflected in your Form 26AS. You can claim it as a credit or refund when filling your ITR. 

 Understanding TDS on Foreign Remittance (Section 195)

When payments are made to non-residents or foreign entities (e.g., contractors, royalties, interest), Section 195 mandates the payer to deduct TDS—tds on foreign remittance.

• Applied to payments such as interest, royalties, services or capital gains paid to NRIs/foreign companies. 
• No monetary threshold-any amount payable to a non-resident is subject to deduction at the full applicable rate unless a lower rate or exemption has been granted 
• Payers must possess, TAN, deduct tax at the time of payment or credit(whichever is earlier), deposit it and file relevant returns. 
• The rate is the higher of the specified percentage or DTAA rate(if applicable), typically:
  • 10% for technical services/royalties. 
  • 20-30% for capital gains, interest, etc., plus applicable surcharge/cess 
  • Failure to deduct leads to disallowed expenses, interest (1.5% p.m.), and penalties (₹10,000–₹1 lakh)

TDS on foreign remittance under Section 195 is a withholding obligation for payments to non-residents, distinct from TCS, which is a preventive levy on outward transfers by residents. 

Is TDS a Final Tax or Can You Claim a Refund?

It is important to understand that TDS on foreign remittance is not a final tax. It is an advance tax payment on your behalf. If your total tax liability for the year is lower than the TDS deducted, you can claim a refund while filling your Income Tax Return(ITR). On the other hand, if your tax liability is higher, you may need to  pay the balance. 

What You Should Keep in Mind While Remitting Money Abroad

1. Track Your Annual Remittances: Once your total remittances crosses ₹7 lakh in a financial year, TDS may be triggered.
2. Submit PAN and Adhaar: To avoid a higher TDS rate of 20%, ensure you provide your PAN or Aadhaar details to your bank.
3. Understand the Purpose Code: Be clear on the reason for remittance, as this determines the applicable TDS rate (education, travel, investments, etc.).
4. Check Your Tax Credit Statement: Ensure the TDS deducted is reflected in your Form 26AS.

Exemptions from TDS on Foreign Remittance

• Remittances for medical treatment abroad do not attract TDS if under ₹7 lakh per year.
• If total LRS remittances are below ₹7 lakh in a year (excluding tour packages), TDS is not applicable.

However, it’s advisable to always consult your bank or tax advisor before initiating large foreign remittances.

Conclusion

Understanding the rules of TDS on foreign remittance, ensures that you are not blindsided by an unexpected tax deduction. As a responsible taxpayer, understanding when and how TDS applies — and ensuring proper documentation — will help you stay compliant and avoid unnecessary complications while sending money abroad.