FM proposes increase in threshold limit to collect tax at source on remittances, TCS on foreign education loans removed

FM proposes an increase in the threshold limit for collecting tax at source on foreign remittances while removing the Tax Collection Service (TCS) on foreign education loans.

Written by Sunil Dhawan

Updated: February 1, 2025 13:29 IST

TCS, LRS,RBI. LIMIT, taxpayers, middle-class, Budget 2025, Union Budget 2025, Announcements, finance minister, FM Nirmala Sitharaman

Finance Minister Nirmala Sitharaman has proposed an increase in the threshold limit to collect tax at source on foreign remittances. (FE Online )

Finance Minister Nirmala Sitharaman in her Budget speech proposed an increase in the threshold limit to collect tax at source (TCS) on remittances under RBI’s Liberalized Remittance Scheme (LRS). FM has proposed to increase the TCS limit from Rs 7 lakh to Rs 10 lakh. FM has also proposed to remove TCS on remittances for education purposes, where such remittance is out of a loan taken from a specified financial institution.

“Tax Collection At Source (TCS) on LRS remittances upto Rs 10 lacs is exempted which is a good move for investors to invest in global funds. This limit was ₹ Rs lac earlier,” says Bhavik Thakkar CEO , Abans Investment Managers.

After budget 2023, LRS regulations required TCS (tax collected at source) at the rate of 20% for any remittances done above Rs. 7 lakhs in a financial year.

The overall LRS limit per individual stands at USD 250,000 (Rs. 2.07 crores approximately). This effectively meant that if one had to invest USD 100,000 (Rs. 83 Lakhs), they had to add another 20% for TCS (earmark total USD 120K) which would be deducted upfront, and this would be eventually adjusted with the final tax liability and filing.

The previous budget 2024 stated that while the TCS stands at 20% and will be deducted upfront, salaried employees will be able to offset the TCS paid against the TDS which is to be deducted from their salary.

This credit of TCS will aid in reducing the TDS deduction from salary. For the non-salaried, TCS will be offset with advance tax payments, if any.

Most importantly, the taxpayer will not have to wait till filing their ITR to claim the refund for the TCS.

Tax Collected at Source will automatically apply to all international transactions in which an Indian converts Indian Rupees to buy foreign currency.

The finance ministry has however made it clear that this 20% TCS will not be applicable to education and medical costs incurred abroad.

The TCS rate and threshold limit will apply to study abroad, based on the type of dollar remittance. Currently, 0.5% TCS is paid on amounts greater than Rs 7 lakh for overseas education loans. Other education-related transactions over Rs 7 lakh are taxed at 5% TCS. As a result, transactions such as housing and living costs over Rs 7 lakh are taxed at 5% if they can be attributed to educational expenses.