How to Avoid TCS on Remittances: Complete Guide

When the government announced the 20% TCS on foreign remittances, my phone didn’t stop buzzing for a week. Parents sending money to kids studying abroad, NRIs trying to invest in India, families supporting relatives overseas – everyone was worried.

“Mani, does this mean I lose 20% of my money?”

No, you don’t. But I understand the confusion. TCS rules are complicated, and the way they’re reported in the media often makes things sound scarier than they are.

Here’s what you need to know: TCS is not an additional tax you lose forever. It’s an advance tax that gets adjusted against your income tax liability. Think of it as a refundable deposit – you get it back when you file your returns (if you don’t owe that much tax).

That said, nobody wants their money blocked for months. So let’s talk about how to legally minimize or avoid TCS on your remittances.

What Is TCS On Remittances?

TCS stands for Tax Collected at Source. When you send money abroad under the Liberalised Remittance Scheme (LRS), your bank collects a percentage of that amount and deposits it with the government on your behalf.

This applies to:

• Sending money for overseas education
• Foreign travel and tour packages
• Investments in foreign stocks, mutual funds, or property
• Gifts to relatives abroad
• Maintenance of family members overseas
• Medical treatment abroad

The key thing to understand: TCS applies to Indian residents sending money OUT of India. If you’re an NRI sending money TO India, TCS doesn’t apply to you.

The 2025 Budget Changes: What’s New?

The Union Budget 2025 brought some relief. Here’s the updated framework effective from April 1, 2025:

Purpose	Up to Rs. 10 Lakh	Above Rs. 10 Lakh
Education (via specified loan)	0%	0%
Education (self-funded)	0%	5%
Medical treatment	0%	5%
Overseas tour packages	5%	20%
All other purposes (investments, gifts, etc.)	0%	20%

Key changes from earlier rules:

1. Threshold increased: The TCS-free limit has been raised from Rs. 7 lakh to Rs. 10 lakh per financial year
2. Education loan exemption: If your education remittance is funded by a loan from a specified financial institution (under Section 80E), there’s ZERO TCS – regardless of the amount
3. Lower rates for education and medical: Even if self-funded, education and medical remittances above Rs. 10 lakh attract only 5% TCS (not 20%)

Important: These rates apply to the aggregate of ALL your remittances in a financial year, not individual transactions.

8 Legal Ways To Avoid Or Minimize TCS

1. Stay Below The Rs. 10 Lakh Threshold

The simplest strategy. If your total foreign remittances for the financial year stay under Rs. 10 lakh, you pay zero TCS regardless of the purpose.

Practical tip: Plan your remittances at the start of each financial year. If you need to send Rs. 15 lakh for your child’s education, consider sending Rs. 10 lakh before March 31st and the remaining Rs. 5 lakh after April 1st (new financial year).

2. Split Remittances Across Family Members

The Rs. 10 lakh limit is per PAN (per person). If you’re sending money for a family expense, multiple family members can each use their individual limits.

Example:

• Father sends Rs. 10 lakh (0% TCS)
• Mother sends Rs. 10 lakh (0% TCS)
• Total sent: Rs. 20 lakh with zero TCS

Had the father sent the entire Rs. 20 lakh alone, he would have paid Rs. 2 lakh (20% of the amount above Rs. 10 lakh) as TCS.

Caution: This must be legitimate. Each person should be sending from their own funds, and the transaction should have a genuine purpose. Don’t create artificial splits just to avoid TCS – that could attract scrutiny.

3. Use Education Loans For Overseas Studies

This is the most powerful exemption available. If your child is studying abroad and you fund their education through a loan from a specified financial institution (banks covered under Section 80E), there’s zero TCS on the entire amount – even if it’s Rs. 50 lakh or more.

Additional benefit: The interest on education loans is tax-deductible under Section 80E, giving you a double advantage.

Even if you have the funds to self-finance, consider taking an education loan and keeping your money invested. The TCS savings alone could be significant.

4. Choose The Right Purpose Code

When you make a remittance, your bank asks for a “purpose code.” Different purposes have different TCS rates. Make sure you’re using the correct code – and if your remittance genuinely qualifies for a lower-rate purpose, ensure it’s coded that way.

Lower TCS purposes:

• S0305: Education (5% above Rs. 10 lakh, or 0% with education loan)
• S0304: Medical treatment (5% above Rs. 10 lakh)

Higher TCS purposes:

• S0306: Tour packages (20% above Rs. 10 lakh)
• Various investment codes (20% above Rs. 10 lakh)

5. Book Travel Components Separately (Not As A “Package”)

The 20% TCS rate specifically applies to “overseas tour program packages.” If you book your international flight, hotel, and activities separately rather than as an all-inclusive package, these individual bookings may not attract the higher 20% rate.

Instead of: Booking a Rs. 15 lakh package tour to Europe (20% TCS on Rs. 5 lakh = Rs. 1 lakh TCS)

Consider: Booking flights separately, hotels separately, and activities separately. These may fall under “travel” rather than “tour package” and attract lower or no TCS.

Note: This is a gray area, and interpretation may vary. Consult your bank or a tax professional for your specific situation.

6. Use NRE/NRO Accounts If You’re An NRI

This is crucial for NRIs to understand: TCS does not apply to remittances from NRO accounts.

If you’re an NRI:

• Transfers from your NRO account to your NRE account: No TCS
• Repatriation from your NRE account to your overseas account: No TCS
• Transfers from NRO directly to your overseas account: No TCS

TCS under LRS applies only to resident Indians. NRIs are not covered.

So if you’re an NRI with Indian income (rent, dividends, interest), you can freely transfer up to USD 1 million per year from your NRO account without any TCS implications.

For more on managing NRI accounts effectively, check out our guide on best NRI accounts in India.

7. Time Your Remittances Across Financial Years

The Rs. 10 lakh threshold resets every April 1st. If you need to send a large amount, consider splitting it across two financial years.

Example: You need to send Rs. 25 lakh for your daughter’s first year of college abroad.

• March 2025: Send Rs. 10 lakh (0% TCS)
• April 2025: Send Rs. 10 lakh (0% TCS – new financial year)
• May 2025: Send Rs. 5 lakh (5% TCS on Rs. 5 lakh = Rs. 25,000)

Total TCS paid: Rs. 25,000

If sent all at once: 5% on Rs. 15 lakh = Rs. 75,000 TCS

That’s Rs. 50,000 saved just by timing your transfers.

8. Claim TCS Refund When Filing ITR

Even if TCS is deducted, you’re not losing that money permanently. TCS is essentially an advance tax payment. When you file your income tax return:

• If your total tax liability is less than the TCS paid, you get a refund
• If your total tax liability is more than the TCS paid, it gets adjusted

How to claim:

1. Check Form 26AS on the Income Tax portal – it shows all TCS deducted against your PAN
2. Include the TCS amount in your ITR
3. The refund (if any) will be processed along with your return

Pro Tip: Keep all TCS certificates (Form 27D) issued by your bank. You’ll need them if there’s any mismatch in Form 26AS.

Who Is Exempt From TCS?

TCS on foreign remittances does not apply to:

1. Non-Resident Indians (NRIs): Remittances from NRO/NRE accounts are exempt
2. Remittances up to Rs. 10 lakh: For all purposes except tour packages
3. Education funded by specified loans: Complete exemption regardless of amount
4. International credit card spending: Currently exempt (government has deferred implementation)
5. Corporates, HUFs, Trusts: LRS and its TCS provisions apply only to resident individuals

Common Questions About TCS On Remittances

Q: Is TCS a permanent loss?

No. TCS is an advance tax that gets adjusted against your income tax liability. If you’ve paid more TCS than your actual tax due, you get a refund.

Q: Do forex cards attract TCS?

Yes. Loading money onto a forex card counts as foreign remittance under LRS and attracts TCS above the threshold.

Q: What about international credit cards?

Currently, international credit card spending is exempt from TCS. The government had proposed including it under LRS but deferred implementation. This could change in the future.

Q: If I send money to my child’s bank account abroad, is it taxable for them?

The TCS is on the sender (you), not the recipient. Your child doesn’t have to pay any tax on receiving the money. However, if you’re sending large amounts as “gift,” ensure proper documentation to avoid questions from either country’s tax authorities.

Q: What if I don’t have a PAN card?

If you don’t provide your PAN, the TCS rate doubles. For example, instead of 5%, you’d pay 10%. Always provide your PAN for any foreign remittance.

Q: Can I avoid TCS by using multiple banks?

No. TCS is tracked at the PAN level, not by bank. All your remittances across all banks are aggregated. Using multiple banks won’t help you stay under the threshold.

A Practical Example

Let’s say you’re a resident Indian with a child studying in the US. Here’s how smart planning can save you money:

Scenario: You need to send Rs. 35 lakh for the academic year (tuition + living expenses)

Option A: Send everything yourself, self-funded

• First Rs. 10 lakh: 0% TCS
• Next Rs. 25 lakh: 5% TCS = Rs. 1,25,000

Total TCS: Rs. 1,25,000

Option B: Use education loan + family splitting

• Take education loan for Rs. 20 lakh: 0% TCS (loan exemption)
• Father sends Rs. 10 lakh: 0% TCS (under threshold)
• Mother sends Rs. 5 lakh: 0% TCS (under threshold)

Total TCS: Rs. 0

Plus, you get Section 80E deduction on the education loan interest.

Savings: Rs. 1,25,000 – just by planning better.

The Bigger Picture

I understand the frustration with TCS. Having your money blocked, even temporarily, isn’t ideal. And for people with lower tax liabilities, the refund can take months.

But here’s some perspective: TCS was introduced to track foreign remittances and ensure they’re linked to tax returns. The government isn’t trying to tax you extra – they’re trying to ensure everyone’s overseas transactions are on record.

If you’re already compliant with your taxes, TCS is more of an inconvenience than a cost. Plan your remittances, use the exemptions available, and claim your refunds when filing returns.

And if you’re an NRI reading this to help family back home – remember, when they send money to you or your kids, they’re the ones dealing with TCS, not you. You might want to share this guide with them.

Key Takeaways

1. TCS is not a permanent tax – it’s an advance payment you can claim back
2. Rs. 10 lakh threshold – stay under this for zero TCS (except tour packages)
3. Education loans are your best friend – 0% TCS regardless of amount
4. NRIs are exempt – use your NRO/NRE accounts
5. Plan across financial years – the limit resets every April
6. Split across family members – each person has their own Rs. 10 lakh limit
7. Choose purpose codes carefully – education and medical have lower rates
8. Always file ITR – that’s how you claim your TCS refund

For more on managing your finances as an NRI or someone planning to return to India, join our community at backtoindia.com/groups. We discuss TCS strategies, tax planning, and everything else NRIs need to know.

---

Join Our Community

Have questions about TCS or foreign remittances? Our WhatsApp community at backtoindia.com/groups has thousands of NRIs and their families discussing these topics daily. It’s free, volunteer-run, and genuinely helpful.

Questions about your specific situation? While I can’t give personalized tax advice, the community often has members who’ve dealt with similar scenarios.

– Mani

---

Disclaimer: This article is for informational purposes only and should not be considered tax advice. TCS rules change frequently, and your specific situation may have different implications. Always consult a qualified tax professional for advice tailored to your circumstances. Information current as of 2025 – verify latest rules before making financial decisions.