Amendments to Tax Law Affecting Foreign Remittances

01 Apr, 2020 Manoj Nadkarni

The Union Budget 2020-21 has introduced a new Tax Collected at Source (TCS) provision on foreign remittance. As per the earlier instructions, a 5 per cent (where PAN/ Aadhaar is available) tax collection at source has to be done for remittances over Rs 7 lakh, for all transactions under Liberalised Remittance Scheme (LRS). However, there have been amendments as per details below:


  1. The provision of TCS shall now be effective from October 1, 2020 instead of April 1, 2020.


  1. TCS shall be applicable on amount in excess of ₹ 7 lakhs in a financial year and not on the total amount


  1. All the outward remittances done under the (LRS) will be liable for 5 % tax collection at source except for the amount is remitted for the purpose of pursuing education through a loan obtained from any financial institute, rate of TCS shall be 0.5%. The same will be collected by Remitter Bank. This tax will be applied only on the transaction value.


  1. The GST will continue to apply on currency conversion and on Remittance Service Charge. The same will not be applied on the 5% Tax collection.


  1. The tax collection will be applicable for all the purposes which fall under Liberalised Remittance Scheme (LRS).


  1. Remitter can claim credit in their Tax returns for the tax collected by the Bank, where PAN/ Aadhaar is provided.



Below are examples for your reference: 


Customer A

Makes a remittance of Rs. 6 lakhs

No tax will be deducted

Makes a further remittance of Rs. 9 lakhs in the same financial year

Total remittance Rs. 6 lakhs +Rs 9 Lakhs i.e 15 lakhs. Tax deduction on 8 lakhs (i.e Rs15 lakhs- 7 Lakhs) @ 5% = Rs. 40,000

Customer B

Makes a remittance of INR 10,00,000 for pursuing Education through a loan obtained from any Financial Institute


0.5% tax will be collected on INR 10,00,000 - 7,00,000 = 3,00,000 i.eRs. 1500


The above tax provision will not apply in case the remitter is liable to deduct tax at source under any other provision of the act and the amount has been deducted. It will also not apply if the remitter is the government or any another person notified by the government