Sending money abroad, whether for a child’s education, an investment, or a family holiday, often comes with a tax collection most people mislabel entirely. Here’s what actually applies, and why the common name for it is wrong.
Who Should Read This?
This applies to freelancers remitting money abroad for personal reasons, students and parents funding overseas education, investors sending money to foreign brokerage accounts, and anyone planning international travel or other remittances under the Liberalised Remittance Scheme.
First, a Correction: This Is TCS, Not TDS
Many people refer to this as TDS on foreign remittances. It’s actually TCS (Tax Collected at Source), under Section 206C(1G) of the Income Tax Act, 1961, now consolidated as Section 506 of the Income-tax Act, 2025, effective 1 April 2026. The distinction matters practically: your bank collects this tax at the time of remittance, functioning as advance tax, fully creditable against your final liability when you file your ITR — not a separate deduction from someone else’s payment to you.
What LRS Actually Allows You to Send Abroad
The Liberalised Remittance Scheme is RBI’s framework letting resident individuals remit up to USD 250,000 per financial year abroad for permitted purposes: education, medical treatment, travel, investments in foreign stocks or funds, gifts to relatives, or maintenance of relatives living abroad.
The Current Rates, By Purpose
| Purpose | Threshold | TCS Rate Above Threshold |
|---|---|---|
| Education (self-funded) | ₹10 lakh/year | 2% |
| Education (funded via loan from specified institution) | No threshold applies | Nil |
| Medical treatment | ₹10 lakh/year | 2% |
| Overseas tour packages | No threshold applies | 2% flat on entire amount |
| Investments, gifts, general remittances | ₹10 lakh/year | 20% |
The ₹10 lakh threshold is a per-PAN annual aggregate, combined across all banks and all remittance purposes together, not a separate ₹10 lakh allowance for each purpose.
A Simple Decision Flow
- Is your remittance for education via a loan from a specified institution? → No TCS applies
- Is it an overseas tour package? → 2% TCS on the entire amount, regardless of value
- Is it self-funded education or medical treatment, and does your total for the year exceed ₹10 lakh? → 2% on the excess
- Is it for any other purpose (investment, gift, general remittance), exceeding ₹10 lakh for the year? → 20% on the excess
- Is your total remittance for the year under ₹10 lakh across all purposes? → No TCS applies
Worked Examples: How the Numbers Actually Play Out
- Education abroad, self-funded: Annual tuition and living costs of ₹35 lakh. TCS applies at 2% on the ₹25 lakh exceeding the ₹10 lakh threshold, totaling ₹50,000.
- Investment in foreign stocks: Transferring ₹15 lakh to a US brokerage account. TCS applies at 20% on the ₹5 lakh exceeding the threshold, totaling ₹1,00,000.
- Family overseas tour package: An ₹8 lakh package booked through an Indian tour operator. TCS applies at 2% on the full ₹8 lakh, since no threshold applies to tour packages, totaling ₹16,000.
In each case, your bank issues Form 27D as the TCS certificate, and the amount reflects in your Form 26AS. When you file your ITR, this collected amount is claimed as credit against your final tax liability, and any excess over what you actually owe is refunded.
Freelancer Scenarios: Don’t Mix This Up With Your Business Income
This is where confusion happens most. LRS TCS applies to outward remittances you make for personal purposes — funding your own investments, your child’s education, or travel. It has nothing to do with:
- TDS your foreign or Indian clients may withhold on payments they make to you for your professional services
- GST or advance tax obligations on your freelance income, covered in our freelancer tax guide
- Form 15CA/15CB compliance, which applies to remittances made by others (like a resident paying a non-resident), not your own LRS-based personal transfers, covered in our guide on Form 145/146 for bank remittances
A freelancer receiving payment from a US client and a freelancer sending money abroad to invest in US stocks are two completely separate tax events, taxed under entirely different provisions.
Common Misconceptions
- “This is an extra tax on top of what I already pay.” It isn’t. TCS functions as advance tax, fully creditable against your final liability, and refundable if it exceeds what you owe.
- “Every foreign transaction falls under LRS.” Not necessarily. Business remittances, certain import payments, and other categories fall outside LRS entirely and are governed by separate rules.
- “The threshold resets for each type of remittance.” It doesn’t. The ₹10 lakh limit is aggregated across all purposes and all banks combined for the financial year.
Given how easily the threshold aggregation and purpose-based rates get mixed up, it’s worth having a CA review your planned remittances before a large transfer, particularly if you’re combining education funding with investments in the same year. Tax Vic’s Tax Advisory and Compliance Management services help freelancers and individuals plan LRS remittances and claim TCS credit correctly.
Key Takeaways
TCS on LRS remittances is advance tax, not an additional cost, but understanding the correct rate for your specific purpose and tracking your aggregate threshold across the year matters before you send money abroad. Keep your Form 27D and Form 26AS records organized, and claim this credit properly when filing your ITR rather than treating it as a sunk cost.
Need help with this? If you’re planning a high-value remittance abroad and want to understand your TCS exposure, book a 15 min free consultation with Tax Vic.
Author: CA Reetu Bhandari
Published: 5 June 2025
Last Reviewed: 11 July 2026
