In recent years, the Indian government has tightened its grip on foreign remittances made by individuals under the Liberalised Remittance Scheme (LRS). Whether you’re a freelancer paying for software tools, a student paying fees abroad, or a traveler booking an international holiday, the TDS (Tax Deducted at Source) rules under Section 206C(1G) of the Income Tax Act may apply to you.
In this blog, we break down what LRS is, how TDS on foreign remittances works, the updated rules as of FY 2023–24, and what freelancers, remote workers, and global travelers must watch out for.
1. What is the Liberalised Remittance Scheme (LRS)?
The LRS allows Indian residents to send up to USD 250,000 per financial year per person abroad for:
- Travel
- Education
- Investment in foreign stocks or property
- Gift/donation to relatives
- Maintenance of relatives abroad
- Subscription to foreign software or tools (common for freelancers)
All such outward remittances are reported by banks to the RBI and Income Tax Department.
2. TDS Under Section 206C(1G): An Overview
Introduced in October 2020 and updated in July 2023, this section mandates that banks/authorised dealers collect TDS on certain types of foreign remittances.
TDS Rates under LRS (FY 2023–24 onwards):
Purpose of Remittance | TDS Rate | Threshold |
For education or medical treatment | 5% | Above ₹7 lakh |
If education loan is taken (Section 80E) | 0.5% | Above ₹7 lakh |
For other purposes (travel, investment, etc.) | 20% | No threshold |
For overseas tour packages | 20% | No threshold |
⚠️ Note: If PAN is not provided, TDS can be charged at higher rates under Section 206AA.
3. How This Affects Freelancers and Remote Workers
If you’re a freelancer paying for foreign services, such as:
- Canva Pro, Adobe, Figma
- Hosting services (e.g., Bluehost, AWS)
- International business tools (Zoom, Notion, etc.)
And the payment is being made via bank remittance or credit card, TDS at 20% may be applied if routed through LRS.
However, due to representations from taxpayers, the government excluded international credit card payments from LRS tracking for now (as per clarification in May 2023).
✅ So, card-based payments up to ₹7 lakh/year may not face TDS. But anything beyond this could be questioned, and banks may apply TDS if routed through formal LRS.
4. How It Affects Travelers and Students
International Travelers:
- If you book a foreign tour package (through an Indian travel agent or website), the provider must collect 20% TCS (tax collected at source), regardless of amount.
- If you make payments directly for flight/hotel (not part of tour), LRS TDS may apply above ₹7 lakh.
Students Studying Abroad:
- If remittance is for tuition fees, 5% TDS applies above ₹7 lakh.
- If you take an education loan from a financial institution, TDS is only 0.5% above ₹7 lakh.
✅ You can claim this TDS as credit while filing ITR, or claim refund if your actual tax liability is lower.
5. Real-Life Example
Example 1: Freelancer Subscribing to Tools
A freelance designer paid ₹3.5 lakh in FY 2024–25 for subscriptions to Figma, Adobe, and other SaaS tools via wire transfer. Her bank deducted TDS @ 20% = ₹70,000 and issued a certificate.
What she did: She claimed this as TDS credit in her ITR and got most of it refunded as her total tax liability was lower.
Example 2: Student Going Abroad for Master’s
A student remitted ₹10 lakh to a US university for tuition. Since this exceeded ₹7 lakh, the bank deducted TDS @ 5% = ₹15,000.
What he did: He included the TDS in his ITR and used it to offset his total tax dues.
6. How to Track and Claim TDS on LRS
- Ask your bank/authorised dealer for TDS certificate (Form 16A) if they deduct tax on your remittance.
- The amount should reflect in your Form 26AS and AIS.
- You can then claim it in your ITR under the TDS/TCS Schedule.
✅ Always keep invoices and purpose proof for any foreign payment made under LRS.
7. Common Misunderstandings
| Myth | Fact |
| Credit card payments are exempt from LRS | Only up to ₹7 lakh per year. Large card payments may be monitored |
| TDS under LRS is a final tax | ❌ No, it’s adjustable against your final tax liability |
| Only businesses need to worry about LRS | Even individuals making personal payments are covered |
| No TDS on gifts to relatives | ❌ 20% TDS applies if total exceeds limit and is for non-medical/educational reasons |
8. Final Thoughts
Foreign remittances are now under close watch through AIS, bank reports, and Form 26AS. Freelancers, professionals, and international students must understand their TDS liability under LRS before making large outward payments.
💡 Smart Tip: Where possible, use Indian payment gateways, check for GST invoicing, and plan your foreign spending across family members to avoid breaching limits.
