Tax Collected at Source (TCS) on Liberalized Remittance Scheme (LRS)
As per the amendment under section 206C of the Income Tax Act, 1961, an authorized dealer who receives an amount, for remittance under the Liberalized Remittance Scheme (LRS) shall be liable to collect Tax Collected at Source (TCS) on LRS transactions. This is applicable on all LRS transactions, including international debit card and UPI transactions.
Transactions on which TCS is applicable
- LRS outward remittance transactions through branch or online.
- Foreign currency demand draft or cash issuance from domestic resident account under for LRS purpose.
- International transactions on debit or credit cards, transactions on foreign merchant sites, and transactions with dynamic currency conversion (DCC)
- UPI International transactions
- Transfers from domestic resident customers to NRO account under LRS (loan or gift to NRI)
Charges
| LRS purpose or type of transaction | Prior to April 01, 2025 | Applicable tax (TCS) |
|---|---|---|
| LRS for education financed by a Loan | Nil up to Rs. 7 Lakh, 0.5% above Rs. 7 Lakh | No TCS applicable |
| LRS for Medical Treatment/Education (Other than financed by a Loan) | Nil up to Rs. 7 Lakh, 5% above Rs. 7 Lakh | Nil up to Rs. 10 Lakh, 5% above Rs.10 Lakh |
| LRS for other purposes | Nil up to Rs. 7 Lakh, 20% above Rs. 7 Lakh | Nill up to Rs. 10 Lakh, 20% above Rs.10Lakh |
TCS Got questions? We’ve got answers.
What is LRS?
The Liberalized Remittance Scheme (LRS) of the Reserve Bank of India (RBI) allows resident Indian individuals to remit a certain amount of money during a financial year to another country for investment, expenditure and other permissible reasons. According to the prevailing regulations, resident Indian individuals may remit up to an amount equal to $250,000 per financial year.
What is Tax Collection at Source (TCS)?
The Finance Act 2023 amended Section 206C of the Income Tax Act 1961 and introduced tax collection at source (TCS) on foreign remittance under LRS subject to the applicable threshold limit. A TCS at the rate of 20% shall be collected on foreign remittances under LRS exceeding ₹10 lakh during the financial year. However, if the remittance is for education abroad and is financed by a loan obtained from a financial institution in India, as defined under Section 80E of the Act, no TCS will be levied. The said amended income tax provisions shall be applicable from 1 October 2023.
Is TCS deduction on LRS transaction a regulatory requirement?
Yes, TCS collection on LRS transactions is a regulatory requirement. This is amended under section 206C of the Income Tax Act 1961.
What are the different purposes on which TCS is applicable?
TCS is applicable on all foreign remittance transactions that fall under LRS.
Is TCS applicable on remittances from a domestic account to an NRO account?
If the purpose of transfer is under LRS (loan or gift to NRI), TCS will be applicable on transfers from a domestic account to an NRO account.
Am I eligible for any tax rebate?
TCS paid can be adjusted against tax payable when individuals who would have paid TCS file their income tax returns (ITR) in India. Please consult your tax advisor/consultant for further information.
Is TCS applicable only for INR to foreign currency conversion transactions?
TCS is applicable on all LRS transactions. LRS permits Rupee loans and gifts to a NRI/PIO close relative. TCS is also applicable on Dynamic Currency Conversion (DCC) transactions on debit cards.
Is TCS applicable at account level or PAN level?
TCS is applicable at PAN level. The LRS limit maintenance, TCS charging and TCS reporting is consolidated at customer level i.e at PAN level.
Is TCS applicable on debit card transactions?
Yes, a TCS at the rate of 20% will be applicable on all overseas transactions done through debit card, including transactions done on foreign merchants or sites which offer Dynamic Currency Conversion (DCC) transactions.
How is TCS on international debit cards handled at Karnataka Bank?
For all international transactions (POS/e-commerce/cash withdrawal) carried out using a debit card (except on the transactions through debit cards issued to NRE accounts), an upfront 20% of the total transaction amount along with applicable markup fees will be debited from the account irrespective of the purpose or type of transaction, and the collected 20% TCS amount will be reversed within 5 working days if the particular PAN has not crossed the threshold of ₹10 lakh for the financial year.
I have an initiated a card transaction equivalent to ₹100. What will be the TCS impact on my card transactions?
TCS will be collected on every foreign transaction on your debit card. A transaction equivalent to ₹100 will be processed if funds comprising the transaction amount (₹100), 3% mark-up fees on the transaction amount (₹3) and TCS at the rate of 20% (₹20), that is, total ₹123 ,are available at the time of processing. If the funds available are less than ₹123, the transaction will be declined.
How can I claim a refund for TCS levied on debit card transactions, if I have not exceeded the threshold limit of ₹10 lakh?
If the transaction amount is within the regulatory limit of ₹10 lakh during the financial year, the TCS amount will be reversed within 5 working days from the date of transaction.
In case of return of transactions / debit card reversal or charge back post debit from the account, will the TCS be refunded?
The TCS will not be reversed once debited. TCS will be reported to the tax authority and reflect in the 26AS of the individual. The remitter can approach the tax authority for refund through ITR or consult with tax advisor for refund/adjustment.
In the event of a refund of TCS, in which account will the credit be effected?
TCS amount will be refunded to the account from which TCS has been debited.
What is Dynamic Currency Conversion (DCC)?
Some foreign merchants offer the facility of Dynamic Currency Conversion — which allows customers to make payments for the purchase directly in their home currency (i.e. Indian Rupees for cards issued in India). This service is offered by select foreign merchants or websites. The final transaction amount (as determined by the merchant/DCC service provider) is to be confirmed by you before making the payment. Depending on the amount provided by the merchant, Karnataka Bank will bill you the final amount (in Indian Rupees). The process of conversion, the exchange rates and any markup applied in such cases is determined by the relevant merchant or DCC service provider. If you do not opt for DCC then you will be billed by the merchant in the local currency. If the local currency is not US Dollars (USD), then the transaction is first converted from local currency to USD, and then from USD to Indian Rupees. The exchange rate will be prescribed by the associations (RuPay/Visa). In this scenario, the foreign currency markup to be charged by Karnataka Bank will be applicable.
- Important Note: Please ensure the account is sufficiently funded to cover the remittance amount, TCS amount, remittance charges, correspondent bank charges and other taxes/charges as applicable. In case of insufficient balances, transactions shall not be processed.
