LRS Just Got Cheaper: Finance Act 2025 Raises the TCS-Free Foreign Remittance Limit from Rs 7 Lakh to Rs 10 Lakh

For lakhs of Indian families paying overseas university fees, booking foreign holidays, or sending money abroad under the Reserve Bank's Liberalised Remittance Scheme (LRS), the Finance Act 2025 delivered a quiet but valuable relief. With effect from 1 April 2025, the threshold at which Tax Collected at Source (TCS) kicks in under Section 206C(1G) of the Income Tax Act, 1961 has been raised from Rs 7 lakh to Rs 10 lakh per financial year. In plain terms, you can now remit up to Rs 10 lakh abroad in FY 2025-26 without a single rupee of TCS being deducted upfront.

This is not a small tweak. Under the old Rs 7 lakh limit, a parent wiring Rs 9 lakh for a child's tuition would have seen TCS collected on Rs 2 lakh. From April 2025, that same remittance sits entirely below the new Rs 10 lakh floor and attracts nil TCS. Below, we break down exactly what Section 206C(1G) now says, work through the arithmetic with real numbers, and flag the mistakes that surface most often during Income Tax scrutiny.

What the Section Says

Section 206C(1G) requires an "authorised dealer" (typically your bank) or a seller of an overseas tour package to collect tax at source when you remit money abroad under the RBI's Liberalised Remittance Scheme. The LRS itself permits a resident individual to remit up to USD 250,000 per financial year for permitted current and capital account transactions (RBI Master Direction on LRS). TCS is a collection mechanism, not a separate tax: whatever is collected is credited to your PAN and can be adjusted against your final income-tax liability.

The single biggest change from the Finance Act 2025 is the threshold. From 1 April 2025, TCS applies only on the amount that exceeds Rs 10 lakh in a financial year, and this Rs 10 lakh is an aggregate figure across all purposes and all banks tagged to your PAN. The earlier Rs 7 lakh threshold no longer applies to remittances made on or after that date.

The rate that applies to the excess over Rs 10 lakh depends on the purpose of the remittance. The table below summarises the position for FY 2025-26.

Two features deserve emphasis. First, remittances for overseas education that are funded by a loan taken from a financial institution as defined under Section 80E(3)(b) attract no TCS at all — the Finance Act 2025 removed the earlier concessional 0.5% collection on such loan-funded remittances. Second, the general category — which covers foreign stock purchases, gifts to relatives abroad, and buying overseas property — remains the most expensive at 20% on the excess over Rs 10 lakh.

Mechanically, the bank or tour operator collects the TCS when it debits your account or receives payment, deposits it against your PAN, files a quarterly return in Form 27EQ, and issues you a certificate in Form 27D. Because the collection is stamped to your PAN, it flows into your Form 26AS and Annual Information Statement, which is why reconciling these documents before filing your return for AY 2026-27 matters so much. Remittances made on or before 31 March 2025 still follow the old Rs 7 lakh threshold; only remittances on or after 1 April 2025 enjoy the new Rs 10 lakh floor.

Worked Example

Consider Rohit, a resident salaried professional, who in FY 2025-26 remits Rs 18 lakh to purchase shares of a US-listed company through the LRS route. This is a "general" purpose remittance, so the 20% rate applies to the amount above Rs 10 lakh.

• Total remittance: Rs 18,00,000
• TCS-free portion: Rs 10,00,000
• Amount liable to TCS: Rs 8,00,000
• TCS at 20%: Rs 1,60,000

Under the old Rs 7 lakh threshold, the same Rs 18 lakh remittance would have attracted 20% on Rs 11,00,000, that is Rs 2,20,000. The higher threshold therefore saves Rohit Rs 60,000 in upfront collection for FY 2025-26.

Now take Meera, who remits Rs 14 lakh in FY 2025-26 towards her daughter's self-funded tuition at a foreign university. Education attracts the concessional 5% rate above Rs 10 lakh.

Had Meera arranged the same fees through a qualifying education loan under Section 80E(3)(b), the TCS would have been nil regardless of the Rs 14 lakh figure. Crucially, the Rs 1,60,000 collected from Rohit and the Rs 20,000 from Meera are not sunk costs. Both amounts appear in their Form 26AS and Annual Information Statement and can be set off against their tax payable, or refunded if excess, when they file their return. Salaried remitters can also ask their employer to factor TCS into salary TDS under Section 192, reducing month-on-month cash outflow. Model your final liability first on the income tax calculator and reconcile collections using the TDS and TCS calculator.

Common Mistakes

Even with the friendlier Rs 10 lakh threshold, remitters routinely trip over the same points, several of which trigger notices when the Annual Information Statement does not match the return.

1. Treating TCS as a lost tax. TCS under Section 206C(1G) is fully creditable. If Rs 1,60,000 was collected but your actual liability on the transaction is nil, the whole amount is refundable when you file your ITR for AY 2026-27. Not claiming it is the single most common and costliest error.

1. Forgetting that Rs 10 lakh is an annual aggregate. The threshold is per PAN per financial year, not per transaction or per bank. Splitting a Rs 15 lakh remittance across two banks does not create two Rs 10 lakh exemptions; both banks report against your PAN and the aggregate above Rs 10 lakh is liable.

1. Paying TCS on genuine education-loan remittances. From 1 April 2025 there is nil TCS on remittances funded by an education loan under Section 80E(3)(b). If a bank still collects on such a remittance, insist on the correct treatment and claim credit in the return.

1. Not furnishing PAN. Where the remitter's PAN is not available, tax is collected at a higher rate under Section 206CC. Always ensure your PAN is quoted on Form A2 and the remittance instruction.

1. Confusing the 5% and 20% categories. Education and medical remittances above Rs 10 lakh are charged at 5%, while general remittances such as overseas investment or property attract 20%. Misclassifying the purpose on the remittance form leads to either over-collection or a mismatch notice.

1. Missing the credit while under the old regime. Choosing the new tax regime for FY 2025-26 does not forfeit your TCS credit — collection under Section 206C(1G) is set off against tax payable under either regime. Compare the two on the old versus new regime calculator before you file.

FAQ

Is the Rs 10 lakh limit per transaction or for the whole year?

It is an annual aggregate. For FY 2025-26, TCS under Section 206C(1G) applies only once your total LRS remittances (across purposes and banks, tagged to your PAN) cross Rs 10 lakh in that financial year.

Is TCS charged on the entire remittance or only the excess?

Only on the excess. If you remit Rs 13 lakh for a general purpose, TCS at 20% applies to Rs 3 lakh (Rs 13 lakh minus the Rs 10 lakh threshold), which works out to Rs 60,000, not on the full Rs 13 lakh.

Can I get the TCS back?

Yes. TCS is reflected in your Form 26AS and Annual Information Statement and is adjusted against your income-tax liability for AY 2026-27. If it exceeds your liability, the balance is refunded after you file your return. You can also visit the capital gains calculator if the remittance relates to foreign investment income.

Do remittances funded by an education loan attract TCS?

No. From 1 April 2025, remittances for overseas education funded by a loan from a financial institution defined under Section 80E(3)(b) attract nil TCS, thanks to the Finance Act 2025.

What rate applies to an overseas tour package?

For overseas tour packages in FY 2025-26, TCS is 5% up to Rs 10 lakh and 20% on the amount above Rs 10 lakh in the financial year.

Does paying TCS reduce my USD 250,000 LRS limit?

No. The USD 250,000 per financial year cap set by the RBI's Liberalised Remittance Scheme governs how much you may remit; TCS is a tax-collection step on top of it and does not shrink the LRS entitlement. See the glossary entry on LRS and on TCS for definitions.

What if my PAN is not linked to the remittance?

Where PAN is not furnished, tax is collected at a higher rate under Section 206CC. To read how source-based collection differs from deduction, see the glossary note on TDS.