TAX ON REMITTANCE FROM INDIA-LRS-RESIDENCY FOR TCS

A recurring question among taxpayers is: How much Tax Collected at Source (TCS) applies when money is repatriated from India to an overseas country? The answer depends primarily on the residential status of the individual under Indian tax and FEMA regulations.

There is no provision for TCS collection when a Non-Resident Indian (NRI) remits money from India. TCS on foreign remittance is governed by Section 206C(1G) of the Income-tax Act, which applies only to remittances made under the Liberalized Remittance Scheme (LRS). As per RBI Master Directions, LRS is applicable only to Resident Individuals, not NRIs. Hence, TCS applies only when a resident individual remits funds outside India.

Applicable TCS Rates under LRS

• 20% TCS: Where total foreign remittances exceed ₹10 lakh in a financial year (general purposes).

• 5% TCS: Where remittance is for education or medical purposes (exceeding ₹10 lakh).
• The Union Budget 2026 has proposed reducing the 5% rate to 2% (subject to enactment).

Any TCS collected is not an additional tax burden. It is adjustable against the taxpayer’s final income-tax liability and refundable at the time of filing the Income Tax Return (ITR), where excess tax has been collected.

The permissible remittance limits differ for Residents and Non-Residents as prescribed under RBI regulations and notifications. These limits must be reviewed before initiating any cross-border Transfer.

For foreign remittances (by Resident or Non-Resident):

• Form 15CA and 15CB is required to be furnished online.
• Form 15CB (CA Certificate) is required only when the remittance exceeds ₹5 lakh in a financial year.

It is a well-settled interpretational position that TCS on foreign remittance applies only when a Resident Individual remits / repatriates’ money outside India.

However, the crucial question is — Resident under which law? Income-tax Act or FEMA?

This distinction is often overlooked

Let us decode the provision logically:

1. Legal trigger of TCS — Section 206C(1G) of Income Tax Act, 1961

TCS is collectible by an Authorized Dealer only when remittance is made under the

Liberalized Remittance Scheme (LRS) of RBI.

2. Who is covered under LRS? — RBI Master Direction

LRS applies only to Resident Individuals under FEMA.

3. Meaning of “Resident” — The Critical Point

Unlike most provisions of the Income-tax Act where the term Resident refers to Section 6

(Income-tax residency), for TCS, residency must be determined as per Section 2(v) of FEMA.

Practical implications

(a) Person leaving India during the financial year

FEMA → becomes Person Resident Outside India immediately

Income-tax → may still be Resident

➡ Remittance made → Not under LRS → No TCS

(b) Person returning to India for permanent settlement

FEMA → still Resident Outside India until stay doesn’t exceeds 182 days in preceding financial

year

Income-tax → may become Resident (including RNOR)

➡ Remittance made → Not under LRS → No TCS