LRS TCS 20%: What the Finance Act 2023 Changed About Foreign Remittances (And How to Calculate It)

The Liberalised Remittance Scheme (LRS) allows Indian residents to remit up to USD 250,000 (approximately ₹2.1 crore) per financial year for a broad range of current and capital account purposes. Since October 1, 2023, the Tax Collected at Source (TCS) rates on most LRS remittances have changed sharply, and the practical cost of ignoring the mechanics falls on the remitter — TCS collected at source reduces the net amount available for the intended purpose, and recovery is deferred to ITR refund.

This article explains the current rate structure, how the ₹7 lakh threshold operates, the international credit card question, and how TCS credit is recouped.

The Governing Provision: s.206C(1G) ITA 1961

Tax Collected at Source on LRS remittances is governed by section 206C(1G) of the Income Tax Act, 1961, inserted by the Finance Act 2020 and substantially amended by the Finance Act 2023 with effect from October 1, 2023.

The mechanism works as follows: the authorised dealer (typically a bank or FFMC) who receives money for remittance abroad under LRS is obligated to collect TCS from the buyer (the remitter) at the prescribed rate at the time of debiting the amount. The TCS is deposited by the authorised dealer with the government; the remitter receives a TCS certificate and can credit the amount against their total tax liability.

The Rate Structure Post Finance Act 2023

The rates that have applied since October 1, 2023 are:

Tour packages (domestic and overseas): TCS at 20% from the first rupee. There is no ₹7 lakh threshold for tour packages. If you pay ₹3 lakh to a tour operator for an overseas package, ₹60,000 is collected as TCS.

Education financed by an education loan from a specified financial institution: TCS at 0.5% on amounts above ₹7 lakh in a financial year. A "specified financial institution" means one that qualifies under s.80E ITA 1961 (the section providing deduction for education loan interest). The concessional rate reflects policy intent: the government does not want to make outbound education-loan-funded remittances prohibitively expensive.

Medical treatment abroad and education from own funds (not via education loan): TCS at 5% on amounts above ₹7 lakh in a financial year. The ₹7 lakh threshold applies as an aggregate across the financial year for the same remitter.

All other LRS purposes — overseas investments, portfolio investment, gifts, maintenance of close relatives abroad, purchase of foreign securities, emigration: TCS at 20% on amounts above ₹7 lakh in a financial year.

Before October 1, 2023, the rate for the "other purposes" category was 5% (which had itself replaced the earlier 5% rate introduced in 2020). The Finance Act 2023 increase from 5% to 20% quadrupled the TCS burden on overseas investment remittances, which was the primary intent — to make LRS-funded foreign investment more visible in the tax system and close the advance-tax deferral advantage.

How the ₹7 Lakh Threshold Operates

The ₹7 lakh threshold under s.206C(1G) is a per-remitter, per-financial-year aggregate across all LRS remittances (other than tour packages, which have no threshold). The authorised dealer is required to aggregate all LRS remittances made by the same buyer in the same financial year across all purposes when computing whether the threshold is crossed.

This has an important practical implication: remittances for different purposes count toward the same ₹7 lakh pool. If ₹4 lakh has already gone for medical treatment earlier in the year, only ₹3 lakh remains in the threshold before TCS kicks in on the next remittance.

The authorised dealer is responsible for collecting this data from the remitter at the time of each transaction. In practice, banks ask the remitter to self-declare the aggregate LRS utilised so far in the financial year. Misrepresentation by the remitter to avoid TCS has its own consequences.

International Credit Cards: The LRS Inclusion

The RBI issued a notification in May 2023 that amended the Foreign Exchange Management (Current Account Transactions) Rules, 2000 to include international credit card transactions for personal expenses abroad within the LRS framework. This move had been long anticipated and was intended to end the practice of routing overseas spending through international credit cards outside the LRS reporting mechanism.

Following industry pushback and operational concerns, the RBI deferred implementation. However, the inclusion of international credit card transactions within LRS — and therefore within the TCS framework under s.206C(1G) — remains the statutory direction. Card-issuing banks have since begun tracking and collecting TCS on international credit card spends. If you routinely spend abroad using an Indian credit card, those spends now count toward both the LRS annual limit and the ₹7 lakh TCS threshold.

The practical effect: the ₹7 lakh threshold gets consumed faster than it once did for frequent international travellers who charge expenses to an Indian credit card.

Worked Example: ₹5 Lakh Medical + ₹10 Lakh Investment

Assume Priya, a resident Indian, remits the following amounts in FY 2025-26:

Transaction 1 — March 2025: ₹5,00,000 remitted for overseas medical treatment

Aggregate LRS for the year at this point: ₹5,00,000. This is below the ₹7 lakh threshold. TCS applicable: nil. Priya's bank collects no TCS and she receives the full ₹5,00,000 credit toward her medical expenses.

Transaction 2 — November 2025: ₹10,00,000 remitted for overseas portfolio investment

Aggregate LRS for the year now becomes: ₹5,00,000 (medical) + ₹10,00,000 (investment) = ₹15,00,000.

The ₹7,00,000 threshold has already been partially consumed. The remaining "free" amount before TCS kicks in for this transaction: ₹7,00,000 − ₹5,00,000 = ₹2,00,000.

TCS base = ₹10,00,000 − ₹2,00,000 = ₹8,00,000 (the portion of the investment remittance above the ₹7L aggregate threshold).

TCS rate for overseas investment (other LRS): 20%.

TCS amount = 20% × ₹8,00,000 = ₹1,60,000.

Total debit from Priya's bank account for Transaction 2: ₹10,00,000 (remittance) + ₹1,60,000 (TCS) = ₹11,60,000.

The ₹1,60,000 TCS is deposited by the bank under Priya's PAN. She receives a TCS certificate, which she will use when filing her ITR.

Note what did not happen: the ₹5L medical remittance triggered no TCS because it was below the threshold at the time. The 5% medical rate never came into play here. Had the medical remittance been ₹9L instead of ₹5L, TCS at 5% would have been collected on ₹2L (the excess above ₹7L), amounting to ₹10,000 — but that is a separate transaction, and the investment remittance would then have its entire ₹10L exposed to 20% TCS.

How TCS Credit Works

TCS collected under s.206C(1G) is the government's money — it has been paid on Priya's behalf and credited to her PAN. The credit mechanism under s.206C(4) ITA 1961 allows the TCS amount to be treated as advance tax paid, available for set-off against:

• The total income tax liability computed in the ITR
• Advance tax payable for the financial year
• Any balance carried forward as a refund if TCS exceeds total tax liability

For individuals who are salaried and have TDS already covering their tax liability, TCS frequently creates excess credit and a refund entitlement. The refund is claimed in the ITR for the financial year in which the TCS was collected. For FY 2025-26 TCS (October 2025 to March 2026), the credit shows up in the ITR due July 31, 2026 (non-audit cases).

The TCS amount appears in Form 26AS and in the AIS (Annual Information Statement) under the TCS section, pre-populated against the remitter's PAN.

Important: TCS on LRS is not an additional tax — it is an advance collection of income tax. If Priya's total tax liability for the year is ₹3,00,000 and she has ₹1,60,000 TCS plus ₹1,50,000 TDS from salary, she gets a refund of ₹10,000 rather than owing anything. The economic cost of TCS is only the time value of the money between collection and refund.

The Mismatch Problem for Low-Income Remitters

The 20% TCS rate is disproportionate for remitters whose total annual income is below the slab that would generate a 20% marginal rate. Consider a young professional remitting ₹10L for overseas investment who falls in the 30% bracket — TCS at 20% is a large but manageable advance. The same TCS collected from someone whose total income is ₹6L (income below ₹7L threshold for the 5% slab) creates a refund that exceeds their entire tax liability for the year.

In such cases, there is no mechanism to reduce TCS at source — unlike TDS under s.197 (where lower-deduction certificates are available), no parallel provision exists under s.206C for LRS TCS reduction on application. The only path is to file the ITR and claim the refund.

Non-Residents and Returning Indians

The LRS limit and TCS obligation apply only to resident individuals under FEMA. Non-residents (NRIs) are not permitted to use LRS — they operate under separate FEMA provisions (NRE, NRO, FCNR account frameworks). Returning Indians who resume Indian residency mid-year become subject to LRS from the date of their FEMA-defined residence and to TCS from that point.

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Key Takeaways

• s.206C(1G) ITA 1961, as amended by the Finance Act 2023 effective October 1, 2023, is the governing provision for LRS TCS.
• The ₹7 lakh threshold is an annual aggregate across all LRS purposes (except tour packages, which carry a flat 20% with no threshold from the first rupee).
• For overseas investments, gifts, and maintenance remittances: 20% TCS on the amount above ₹7L per year — four times the pre-October 2023 rate.
• TCS is not a final tax — it is advance tax credit, reclaimable in the ITR for the relevant financial year.
• The authorised dealer (bank) aggregates the remitter's LRS transactions for the year; the remitter must self-declare prior LRS utilisation at each transaction to ensure correct threshold tracking.

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