Budget 2025: Nirmala Sitharaman proposed to rationalise tax collection at source (TCS) during her Budget 2025 speech. The threshold to collect TCS on remittances under RBI's liberalised remittance scheme (LRS) is proposed to be raised from ₹7 lakh to ₹10 lakh.
She also proposed to remove TCS on remittances for education purposes, where such remittance is out of a loan taken from a specified financial institution.
Besides, to prevent compliance difficulties, she proposed to omit the TCS on sale of goods. Let us understand what is TCS?
This is an advance tax which is collected at the time of transactions including sale of goods and foreign remittances. Since Budget 2025 has proposed to phase out TCS on the sale of goods, this will apply in case of foreign remittances.
When you remit the money overseas and it crosses a threshold, the remitter is meant to pay an advance tax to the financial institution that facilitated the transaction such as bank.
This is not an extra tax but like an advance tax which can be adjusted against the tax liability at the time of filing of return.
When the total tax liability is more than the tax deposited, one has to deposit the balance tax with the tax department a the time of filing ITR, and when the tax liability falls short -- taxpayer is entitled to receive a tax refund.
Currently, the threshold to collect TCS for banks is ₹7 lakh but it has now been raised to ₹10 lakh. This means when you transfer an amount above ₹10 lakh, you have to pay an advance tax in form of TCS which is collected by the bank to deposit with the tax department.
Currently, there are three different rates: 0.5 percent, 5 percent and 20 percent. When the foreign remittances under the LRS cross ₹7 lakh, TCS rate is 5 percent in case of education or medical treatment, and 20 percent for other purposes.
When the education is financed through an education loan, the tax rate stands at 0.5 percent. However, this has now been phased out. This means from April 1, 2025 onwards – after the Finance Bill 2025 becomes an Act – foreign remittances for education financed through education loan will not attract TCS anymore.
Remittances for other purposes will continue to attract 20 percent or 5 percent as the case may be.
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