TCS on Foreign Remittance: What Indian investors need to know

Investing in US stocks has become a hot trend among Indian investors. It is a great way to diversify your portfolio and tap into some of the world’s largest companies that are listed in the US market. But before you send your money abroad, you need to understand Tax Collected at Source (TCS) on foreign remittances.

If you have been investing in US stocks, you probably know that sending money to a US broker involves remittance under the Liberalised Remittance Scheme (LRS). And with the Budget 2025-26 update, there’s some good news as the TCS threshold has been raised from ₹7 lakh to ₹10 lakh. This means you can now remit up to ₹10 lakh in a financial year without paying any TCS.

Let’s break it down in simple terms and see what this means for investors

What is TCS on Foreign Remittance from April 1?

Think of TCS as a prepaid tax that the government collects when you send money abroad. Your bank automatically deducts it at the time of remittance, and you can later adjust it when filing your income tax return (ITR).

Before the Budget 2025 update, any remittance above ₹7 lakh attracted a 20% TCS. But now, from April 1, 2025, you only pay TCS if your remittance crosses ₹10 lakh.

TCS rate on foreign remittances for US stock investments from Apr 1, 2025

TCS on foreign travel, overseas education from Apr 1, 2025

If you’re funding your education through a loan, you don’t have to pay any TCS on remittances for tuition or living expenses.

How Tax collected at Source (TCS) applies to foreign remittance?

Assuming that you remit ₹12,10,000 for investments. Under the new rules:

₹10,00,000 → No TCS (0%)

₹2,10,000 → TCS @ 20% = ₹42,000

Total deduction: ₹42,000 (adjustable against income tax)

Net effective remittance: ₹11,68,000 (Remittance-Total Deduction)

This ₹42,000 TCS you can offset with the income taxes that you need to pay. 

Difference between Tax Collected at Source (TCS) and Tax Deducted at Source (TDS)? 

Both TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) involve tax deductions, but they apply in different situations.

TDS applies to income you earn like salary, interest, or rent. It is your tax liability, and the payer deducts it before paying you. On the other hand, TCS applies when you spend money on specific transactions, like sending money abroad. It is not an extra tax, just an advance collection that you can adjust against your tax liability.

Example: If your salary is ₹1,00,000 per month and the applicable tax is ₹10,000, your employer deducts this amount as TDS before paying you ₹90,000. In the case of TCS, if you remit ₹12 lakh for US stock investments, you’ll pay TCS ₹2 lakh (since ₹10 lakh is tax-free). This amount can later be claimed when filing your income tax return.

Why is TCS applicable on Foreign remittances?

The Indian government introduced TCS on foreign remittances to prevent money laundering and monitor high-value transactions. Think of it as a way to ensure that people sending large sums abroad actually have the income to support it.

For example, imagine someone earning ₹10 lakh per year but remitting ₹2 crore abroad. That does not add up, right? This mismatch raises a red flag for tax authorities. TCS acts as a checkpoint, helping the government track and verify such transactions to ensure they are not being used for illegal activities like tax evasion or money laundering.

How do I offset TCS with my income Tax?

You need to remember that TCS is not an extra tax. You can adjust it against your income tax liability and even claim a refund. Assuming ₹2000 has been deducted as TCS, here's a detailed guide that will help you offset TCS in several ways

• Through Salary: Ask your employer’s payroll team to reduce ₹2,000 from your TDS deduction.
• Capital Gains Tax: If you made a profit from selling stocks, property, or other assets, adjust ₹2,000 while paying your advance tax.
• Other Income Sources: If you earn from freelancing, rent, or interest, reduce ₹2,000 from your advance tax payment.
• During ITR Filing: If your total tax liability is lower than the TCS collected, it will remain as a tax credit, and you’ll get a refund after filing your Income Tax Return (ITR).

Example: If your total tax due for the year is ₹50,000 and ₹2,000 has already been deducted as TCS, you only need to pay ₹48,000 when filing your taxes. If your tax due is less than ₹2,000, the extra amount will be refunded to you by the income tax department.