If you've sent money abroad for your child's education, an overseas holiday, or to invest in foreign stocks, you may have noticed your bank deducting an extra amount as TCS (Tax Collected at Source). This isn't a fee the bank keeps — it's a tax credit that gets added to your Form 26AS/AIS and can be claimed against your final tax liability. Here's how Section 206C(1G) TCS on foreign remittances actually works.
What Is Section 206C(1G)?
Section 206C(1G) requires authorized dealers (banks) and tour operators to collect tax at source (TCS) on certain remittances made under the Liberalised Remittance Scheme (LRS) of the RBI, and on the sale of overseas tour packages. The LRS allows resident individuals to remit up to USD 2,50,000 per financial year for permitted purposes (education, medical treatment, travel, gifts, investments abroad, etc.).
TCS Rates: A Quick Reference
| Purpose of Remittance | TCS Rate | Threshold for TCS to Apply |
|---|
| Education (loan-funded, from a financial institution under Section 80E) | 0.5% | Above ₹7 lakh in a financial year |
| Education (self-funded, not via education loan) & Medical treatment | 5% | Above ₹7 lakh in a financial year |
| Overseas tour packages | 5% (up to ₹7 lakh), 20% (above ₹7 lakh) | From the first rupee for the lower rate band |
| All other purposes (investment in foreign stocks/property, gifts, etc.) | 20% | Above ₹7 lakh in a financial year |
⚠ The ₹7 lakh threshold is per financial year, per remitter (aggregated across all remittances under LRS for that purpose) — not per transaction. Banks track cumulative LRS remittances against your PAN across the year, so TCS may kick in on a later transaction even if individual transactions are smaller.
How TCS Is Calculated: An Example
Example: Investing in US StocksRohan remits ₹10 lakh during FY 2025-26 to a US brokerage account to buy stocks (a 'other purposes' remittance under LRS, not education/medical). TCS applies at 20% on the amount EXCEEDING ₹7 lakh, i.e., on ₹3 lakh. TCS collected = 20% × ₹3,00,000 = ₹60,000. Rohan's bank deducts ₹10,60,000 total from his account (₹10 lakh remitted + ₹60,000 TCS), and the ₹60,000 appears as TCS credit in his Form 26AS/AIS.
Education Loan Remittances: The Lower 0.5% Rate
If you're remitting money abroad for a child's education AND the remittance is funded by an education loan from a specified financial institution (eligible for Section 80E deduction), the TCS rate drops to just 0.5% on amounts above ₹7 lakh — significantly lower than the 5% rate for self-funded education remittances. This is a meaningful difference: on a ₹20 lakh remittance, the TCS would be ₹6,500 (loan-funded) vs ₹65,000 (self-funded), on the ₹13 lakh exceeding the threshold.
How to Claim TCS Credit
TCS collected under Section 206C(1G) is not a final tax — it's a credit that can be claimed in your Income Tax Return, just like TDS:
- The TCS amount appears in your Form 26AS and AIS (Annual Information Statement) under the relevant section
- While filing your ITR, this TCS credit is claimed against your total tax liability for the year
- If your total tax liability is less than the TCS collected (common for salaried individuals whose TDS already covers most of their liability), the excess TCS is refunded
⚠ Cash flow impact: TCS is collected upfront at the time of remittance, but the credit/refund only comes when you file your ITR for that financial year — potentially a wait of several months to over a year. For large remittances (e.g., funding a child's overseas education across multiple years), this can mean a meaningful amount of money is locked up temporarily.
Salaried Employees: Can TCS Be Adjusted Against TDS on Salary?
Yes — employees can declare anticipated TCS (and other tax credits) to their employer, and the employer can factor this into the monthly TDS computation on salary, reducing the TDS deducted from salary to account for the TCS already paid. This requires submitting proof of the TCS to the employer's payroll/finance team, typically via Form 12BAA or similar declarations as prescribed.
Common Mistakes
- Forgetting that the ₹7 lakh threshold is cumulative across the financial year, not per transaction — leading to surprise TCS deductions on later remittances
- Not informing the employer about TCS paid, missing out on reduced monthly TDS and waiting for a refund instead
- Confusing the 0.5% education-loan rate with the 5% self-funded education rate when planning remittances for a child's education abroad
- Not reconciling TCS entries in Form 26AS/AIS before filing the ITR, leading to credit mismatches
Frequently Asked Questions
I'm sending ₹5 lakh abroad for my daughter's education this year (self-funded, no education loan) — will TCS apply? ▼
No, not on this transaction alone. TCS under Section 206C(1G) for education/medical remittances applies only on the amount EXCEEDING ₹7 lakh in a financial year (aggregated across all such remittances). If your total LRS remittances for the year stay at or below ₹7 lakh, no TCS is collected. However, if you make additional remittances later in the same financial year that push the cumulative total above ₹7 lakh, TCS at 5% would apply to the amount exceeding ₹7 lakh from that point onward.
Is TCS collected under Section 206C(1G) an additional tax, or can I get it back? ▼
TCS is NOT an additional tax — it is a tax credit, similar to TDS. The amount collected appears in your Form 26AS and AIS, and you claim it as a credit when filing your Income Tax Return for that financial year. If your final tax liability (after considering all income, deductions and other TDS/TCS) is less than the TCS collected, the excess is refunded to you. The main impact is on cash flow — the money is collected upfront and the credit/refund comes only after filing your ITR.
Does TCS under Section 206C(1G) apply to all foreign remittances, including credit card spending abroad? ▼
Remittances made under the Liberalised Remittance Scheme (LRS) through authorized dealers (banks) for permitted purposes — education, medical treatment, travel, investments, gifts, etc. — are covered. International credit card spending while abroad has historically been treated differently from LRS remittances for TCS purposes, and the specific treatment has been subject to government clarifications and changes over time. Given the evolving nature of rules around credit card spending abroad, check the current notification/your bank's guidance for the latest position before assuming credit card transactions are or aren't covered.