"Any LRS transfer above Rs.7 lakh attracts 20% TCS": What ITA 2025 actually says

Ask almost anyone remitting money out of India today what the TCS rule is, and you will hear the same sentence: "anything above Rs.7 lakh gets hit with 20% TCS." That number has been repeated so often on WhatsApp forwards, YouTube explainers and even by some bank relationship managers that it has hardened into folklore. It is wrong. The threshold has been Rs.10 lakh since 1 April 2025, several categories that people assume attract 20% now attract a flat 2%, and the provision itself no longer sits where people think it sits — the Income-tax Act, 2025 renumbered it.

If you are a resident individual sending money abroad — for a child's tuition in Toronto, a property deposit in Dubai, a portfolio account in Singapore, or medical treatment in Bangkok — the difference between the folklore version and the actual rule can be several lakh rupees of cash blocked for a year. Here is what the law actually says.

What the law actually says

Two separate legal regimes govern an outward remittance from India. People routinely collapse them into one, and that is where the confusion starts.

The first is FEMA. The Liberalised Remittance Scheme is an RBI facility issued under the Foreign Exchange Management Act, 1999. It permits a resident individual — including a minor, with the guardian countersigning Form A2 — to remit up to USD 250,000 per financial year for any permissible current or capital account transaction. That limit has not changed. It is a per-individual, per-financial-year ceiling, it resets on 1 April, and it does not carry forward. A family of four can therefore move up to USD 1 million in a year, provided each remittance genuinely comes from that individual's own funds and their own PAN.

LRS covers, on the capital account side, purchase of immovable property abroad, overseas shares and debt securities, opening a foreign bank account, and setting up a wholly-owned subsidiary or joint venture under the Overseas Direct Investment route. On the current account side it covers travel, education, medical treatment, gifts, donations, maintenance of relatives and emigration. It does not cover remittances for margin trading, lottery, purchase of foreign currency convertible bonds issued by Indian companies overseas, or remittances to countries identified by the FATF as non-cooperative.

The second is income tax. Tax Collected at Source on outward remittance was introduced as Section 206C(1G) of the Income-tax Act, 1961. Under the Income-tax Act, 2025 — in force for Tax Year 2026-27 onward — the same provision has been renumbered as Section 394(1). Read every bank advice and Form 27D you receive with both numbers in mind: older systems still print "206C(1G)", newer ones print the ITA 2025 section. They are the same levy.

The rates that actually apply from 1 April 2026 are:

• First Rs.10 lakh in a Tax Year: nil. The threshold was raised from Rs.7 lakh to Rs.10 lakh with effect from 1 April 2025. This is an aggregate across all LRS remittances by the same PAN in the Tax Year, not per transaction and not per bank.
• Education and medical treatment, above Rs.10 lakh: 2%. Where the education remittance is funded by a loan from a financial institution, the rate is nil regardless of amount.
• Overseas tour programme packages: 2%, with no threshold. A tour package is treated separately — the Rs.10 lakh cushion does not apply to it.
• All other purposes above Rs.10 lakh — investment, property, gifts, maintenance of relatives: 20%.

So the folklore is half-right and dangerously imprecise. The 20% rate is real, but it applies only to the residual bucket, only above Rs.10 lakh, and only after the threshold has been exhausted.

The other point almost everyone misses: TCS is not a tax. It is a prepayment credited against your final liability, reported in Form 26AS — now Form 168 under ITA 2025. It is refundable if your actual liability is lower. What it costs you is not money; it is time and liquidity.

Practical implications

Consider a Bengaluru-based resident sending USD 60,000 (roughly Rs.52 lakh at Rs.87) to buy an apartment in Dubai in September 2026. This is a capital account remittance under LRS — residual bucket, 20%.

• First Rs.10 lakh: nil.
• Remaining Rs.42 lakh at 20%: Rs.8,40,000 collected as TCS.

That Rs.8.4 lakh is not lost. It sits with the exchequer, appears in Form 168, and is set off when the return for Tax Year 2026-27 is filed after 31 March 2027 — with a refund landing somewhere between June and December 2027. The purchase, however, needs Rs.8.4 lakh of additional cash today. Buyers who budget only the property price and then discover the bank is debiting an extra Rs.8.4 lakh are the single most common panicked call this practice receives in the September-to-March window.

Now compare the same amount sent for a daughter's Master's programme in Canada. Education, above Rs.10 lakh, funded from own savings: 2% on Rs.42 lakh = Rs.84,000. If the same Rs.52 lakh had been drawn from an education loan sanctioned by a scheduled bank, the TCS would be nil. Same money, same corridor, three completely different cash outcomes depending on purpose and funding source.

A third scenario that catches people: the Rs.10 lakh threshold is cumulative across the Tax Year and across banks. Someone who remits Rs.6 lakh in May for a family visit through one bank and Rs.8 lakh in November for a share purchase through another has crossed Rs.10 lakh in aggregate. The second bank collects TCS on Rs.4 lakh, because the Authorised Dealer is required to obtain a declaration of LRS remittances already made in that Tax Year. Understating that declaration is not a clever workaround — it is a false declaration under FEMA and under the tax law simultaneously.

There is a specific NRI-adjacent trap worth naming. LRS is available only to resident individuals. An NRI cannot use it. If you have returned to India and become resident — or become RNOR — your Indian bank accounts must be redesignated, and money going back out is either an LRS remittance (if you are now resident) or a repatriation from NRO under the separate USD 1 million per financial year facility (if you are still non-resident). People in the transition year frequently attempt the wrong route. The two have different limits, different forms, and different tax consequences.

Finally: TCS interacts with your advance tax. Because it is a credit, a large LRS remittance early in the year can leave you with TCS credit exceeding your total liability — in which case you should reduce subsequent advance tax instalments rather than paying twice and waiting for a refund on both.

Step-by-step: what to do

• Establish your residential status for the Tax Year first. Section 6 governs this and is materially the same under ITA 1961 and ITA 2025. If you are non-resident, LRS is not your route — stop and use the NRO repatriation route instead.
• Calculate your cumulative LRS usage for the Tax Year to date, across every bank, from 1 April. Pull your Form 168 (Form 26AS) from the e-filing portal to see TCS already reflected.
• Classify the purpose precisely before you approach the bank. Education, medical, tour package, or residual — this single classification determines whether you pay nil, 2% or 20%.
• If it is education, check whether a loan can fund it. A sanctioned education loan from a financial institution reduces TCS to nil. On a Rs.42 lakh remittance that is Rs.84,000 of working capital preserved.
• Complete Form A2 and the LRS declaration accurately, including remittances already made in the Tax Year through other banks. The Authorised Dealer relies on this declaration; the liability for a false one is yours.
• Budget the TCS as an additional cash outflow, not as a deduction from the remittance. The bank debits it over and above the amount you are sending.
• Collect Form 27D from the bank within the statutory timeline and reconcile it against Form 168 before filing.
• Adjust your remaining advance tax instalments downward to absorb the TCS credit rather than accumulating a refund claim.
• If the remittance is a capital account transaction — overseas property, shares, or an ODI structure — confirm the separate reporting obligations attach. Property abroad must be disclosed in Schedule FA of your return, and ODI carries its own Form ODI-Part I reporting to the RBI through the AD bank.

FAQ

Does the Rs.10 lakh threshold reset every year?
Yes. It is a per-Tax-Year threshold, running 1 April to 31 March, and it resets on 1 April. It does not carry forward. A remittance made on 29 March and another on 2 April fall in different Tax Years and each gets its own Rs.10 lakh cushion — which is a legitimate timing strategy where the remittance is genuinely flexible.

Can I avoid TCS by splitting the remittance across four family members?
Only if the money genuinely belongs to each of them. Each resident individual has their own USD 250,000 LRS limit and their own Rs.10 lakh TCS threshold, so four adults can move funds with four separate cushions. But if you transfer your own money into their accounts first and then remit, the clubbing provisions and the source-of-funds scrutiny at the AD bank both bite. Do this only where the underlying funds are actually theirs.

Is the 20% TCS refundable if I have no other Indian income?
Yes. TCS is a credit, not a final tax. File your return for the Tax Year, claim the credit reflected in Form 168 (Form 26AS), and the excess is refunded with interest under the refund interest provisions. The cost is the delay, which can run twelve to eighteen months from the date of remittance.

Does buying foreign shares through an Indian broker's global investing feature count against my LRS limit?
Yes. Those platforms execute the transfer as an LRS remittance under your PAN, and it counts against both your USD 250,000 annual limit and your Rs.10 lakh TCS threshold. It falls in the residual 20% bucket above the threshold. Check your broker's statement — many investors are surprised to find they have consumed a large part of their LRS headroom through routine SIP-style overseas investing.

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See Also

• "DIR-3 KYC is an annual filing": what the 2026 MCA amendment actually changed
• "A Power of Attorney lets me sell my Indian property tax-free from abroad": What the law actually says
• "Gifts to family in India are always tax-free": What ITA 2025 actually says about NRI gift tax

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