The Union Budget of 2020-2021 has grasped the enormous attention of the people, especially of the students planning for taking abroad education loans. The budget intends to levy 5% TCS on overseas remittance according to Section 206C for the people who are flying overseas. The finance bill 2020 proposes that if a person transfers more than Rs 7 lakhs overseas under LRS or purchases an overseas tour package, then they have to pay 5% of that amount as tax to the Government. 

What is foreign Remittance?

The transfer of money from a foreign country to their home country is known as foreign remittance where a considerable percentage of money is used for the country’s economic growth. It is measured as the gross domestic product (GDP) which assesses the overall domestic production of the country. 

The United States, Russia, and Saudi Arabia are known as the leading source of foreign remittances due to the enormous flow of funds where banks like G8 and World Bank are monitoring and regulating remittance costs.

Due to the outbreak of the pandemic, the World Bank will likely decline the foreign remittances by 20% due to the global economic downturn. 

What are the TCS Amended Provisions? 

As the amended provisions of TCS have come to effect after 1st October 2020 and Foreign remittance outside India is now taxable you must have knowledge of the amended provisions of TCS.

Section 206(1G)(a)

TCS on foreign remittance through LRS

Section 206C(1G)(b) 

TCS on the selling of overseas travel package

Section 206C(1H)

TCS will be applied to the sale of any goods

Please understand that the remittance out of India under the LRS of RBI shall be liable to collect TCS of 5% but with the unavailability of PAN and Aadhaar, they will be liable to collect TCS of 10%.In the case of remittances on account of an educational loan, the TCS is 0.5% for remittances in excess of Rs7 lakh in a financial year. 

What is LRS?

During a financial year, the Reserve Bank of India (RBI) permits resident individuals to remit a definite amount to another country for the purpose of investment and expenditure. This arrangement is the Liberalized Remittance Scheme of RBI. This amount can be utilized for various purposes like medical treatment, education, donations, and finance for close relatives, etc. However buying and selling foreign goods like purchasing magazines, and lottery tickets are prohibited under Schedule II of Foreign Exchange Management Rules, 2000.

Foreign remittance under the Liberalised Remittance Scheme (LRS) include:

  1. Foreign investments
  2. Education out of India
  3. Medical treatment
  4. Family maintenance

Earlier there was no tax on remittances from India but after Budget 2020, TCS will be applied to foreign remittances under the Liberalized Remittance Scheme (LRS) of RBI. 

All you need to know about TCS on foreign remittances

A few things you need to know about the new tax on foreign remittances are as follows: 

  • After the Union Budget 2020-21, fresh amendments have been introduced to the Finance Bill, where 5% of tax would be levied on overseas remittance as TCS (Tax collected at Source) under the Liberalized Remittance Scheme (LRS) as a new provision.
  • This bill will come into effect after 1st October 2020, where tax would be levied on international fund transfers above 7 lakhs.
  • People remitting funds via LRS will have to pay the tax collected at the source (TCS). Remitting made after 1st October 2020 above 7 lakhs, TCS will be calculated. For instance: In FY 2023, if you remit 15 lakhs, the amount will be calculated on the exceeding threshold i.e. 8 lakh. 5% of the 8lakh will be deducted as TCS i.e. Rs 40,000.
  • Indian Resident investors who fund their accounts under the Reserve Bank of India (RBI), this is only applicable under the Liberalized Remittance Scheme.
  • This would include expenses on medical treatment, foreign education, and investment in real estate, sending maintenance for relatives abroad, and also stocks and bonds.
  • Transfers that were done before October 2020 will not be affected.
  • GST will not be applicable to the TCS amount.
  • TCS will be collected from the authorized dealer and then will be deposited with the Government.
  • TCS is 0.5% on remittance on account of educational loans taken from the financial institutions.

Therefore, for students who have procured loans to pursue education overseas, keeping their prerequisite into consideration, TCS on remittances supported by financial institutions for study abroad is kept at 0.5% on the payment above Rs 7Lakhs. 

Who will collect the tax?

The bank disbursing the money will collect the tax and reimburse it to the Government. In case of an overseas tour or for a travel package, the travel agency that is offering the package will be responsible to collect the TCS. 

A tax of 5% will be levied on the purchase of an overseas tour program package. The tour operator should collect the TCS and then deposit it to the Government. The travel tour package will include all the expenses including boarding and lodging, flight charges, and any other expenses of similar nature. 

Certain exceptions on TCS:

  • No TCS will be collected from the buyers in case the seller has already collected the tax
  • No TCS will be collected on the amount paid i.e. if the amount is already liable to TDS under any other provision of income tax
  • No TCS will be collected in case of remittances from the State Government, Central Government, or any embassies.

How to claim the tax refund?

It has raised the upfront cost of foreign education and travel, even though the following tax can be claimed as a refund while filing the income tax return.

The money being sent by the remitter person can claim for a tax refund but in the case of an education loan, the scenario changes as the co-applicant can claim for a refund. This is because, during the time of amount disbursement, the co-applicant has to sign the LRS.

Things to keep in mind while you claim for the tax refund:

  • Adjust the TCS amount towards your other tax liabilities
  • If you’re unable to adjust the TCS amount, you can claim a refund to your account directly
  • Any TCS paid for foreign remittance will be reflected in the Form 26AS of the remitter
  • You will get a TCS certificate from the financial institution or Forex Company that collected the tax
  • For salaried employees, you can provide the certificate of TCS to your employer, as it will help them claim the refund during the time of annual tax filing
  • For self-employed remitters can adjust other tax liabilities or can get a refund of it. 

TCS will increase the cost of foreign remittance, as well as the cost of foreign travel; you can recover the cost of TCS on claiming the TCS as tax credit while filing your Income Tax Return. 


Therefore students studying abroad can be at ease as there will be no effect as for education-related foreign remittances funded by loans, the tax will be just 0.5% for the amount above Rs 7 Lakh, as many Indian students take loans to pursue education overseas. Under The Finance Act, 2020, accordion to Section 206C, if the remittance is made out of a loan taken for higher education, the TCS rate will be 0.5% of the money remitted.