TCS (Tax Collected at Source) applies primarily to Indian residents purchasing specific high-value goods (motor vehicles >₹10 lakh, bullion >₹2 lakh) or remitting money abroad via LRS exceeding certain thresholds. Sellers (government, companies, or individuals audited) collect this tax from buyers. Key exclusions include non-residents (NRIs) and specific entities like public sector companies.
Under section 206C (1H) of the Income Tax Act, TCS is mandated if the seller's annual turnover exceeds Rs. 10 crore. Sellers are also required to deduct TCS if the aggregate sale amount received from a single buyer exceeds Rs. 50 lakh in a financial year.
The seller should collect tax from the buyer in addition to the value of the goods/services. A buyer is a person who purchases specific goods. He is liable to pay TCS amount along with the bill amount in applicable cases.
5 Legal & Smart Ways to Avoid Paying 20% TCS on Foreign Remittances in 2025
According to Section 206C of the Income Tax Act 1961, if the seller has collected the tax then they are required to file a TCS return in Form 27EQ. The form has to be submitted by both corporate and government collectors and deductors.
As an NRI, PIO, or OCI, you may be required to file tax returns in India if your Indian income surpasses the specified threshold or if you seek to claim refunds for excess tax deductions. While filing an ITR is mandatory only under certain circumstances, voluntary filing can be beneficial in many ways.
If your income is above the taxable annual limit and the TCS paid is more than the total tax payable, TCS will be refunded to the assessee's bank account. If your income is above the taxable annual limit and the TCS paid is less than the total tax payable, the TCS paid will be adjusted to the total tax liability.
Maximum marginal rate is the highest rate of tax at any income level. This means for those with incomes between Rs 2 crore and Rs 5 crore, 39% will be the highest applicable tax rate, and for those with incomes above Rs 5 crore, it will be 42.74% — the highest tax rate since 1992.
Non-Resident Indians (NRIs) are generally exempt from TCS on their foreign remittances, as the LRS framework is designed for residents. NRIs typically manage their Indian income through Non-Resident External (NRE) or Non-Resident Ordinary (NRO) accounts.
To avoid the 20% TCS on foreign remittances, make sure your total remittances do not exceed Rs. 10,00,000 in a financial year. Also, choose the correct transfer purpose code, as some categories like education funded by specified loans and medical treatments have lower TCS rates (5% or nil).
According to it, residents of India can remit a maximum of $250,000 within a given financial year to individuals living overseas. This includes both capital and current account transactions.
With the recent changes in the Indian Income Tax Act, it's now possible to pay zero tax on a salary of up to Rs. 7 lakhs. To pay zero tax on a 7 lakh salary using the old tax regime, maximize deductions: Claim Tax Rebate under Section 87A.
How is TCS calculated? TCS is calculated on the gross payment amount. eCommerce operators or E-marketplaces will deduct it at 1% at the time of the sales amount for the goods or services getting credited.
The TCS is to be calculated on a buyer basis. The threshold limit u/s 206C(1H) is 50 lakh in a financial year. So, you have to collect @0.1% on over and above Rs 50 lakh.
This is an exemption designed to ease the financial burden on students studying abroad. For other educational remittances, not covered by an Education Loan, the rate is 5% for amounts above INR 10 lakh. Overseas tour packages attract a TCS of 5% up to INR 10 lakh and 20% thereafter.
For example: If TCS base amount was 10,000.00 in advance payment and line amount is 20,000.00 on sales invoice, then TCS is calculated on 10,000.00 on sales invoice. TCS is calculated after adjusting the TCS amount, which was earlier calculated on advance payment.
The "90-day rule" for non-residents typically refers to two different concepts: in U.S. immigration, it's a guideline for determining if a non-immigrant misrepresented their intent by engaging in certain activities (like unauthorized work or immediate marriage) within 90 days of arrival, leading to visa fraud or inadmissibility. In Canadian tax law, the 90% rule allows non-residents to claim full federal tax credits if 90% or more of their world income is from Canadian sources, otherwise, credits are prorated.
Step-by-step guide to claim TCS refund in ITR
Surcharge and Cess:
Surcharge under the New Regime (for individuals below 60 years): Income over ₹50 lakh but under ₹1 crore: 10% of income tax payable. Income over ₹1 crore but under ₹2 crore: 15% of income tax payable. Income over ₹2 crore but under ₹5 crore: 25% of income tax payable.
Other countries collect 10 to 60 per cent of the tax. India collects 42.74, Canada 33, US 37, Finland 56.95, France 45, UK 45, Germany 45, Hong Kong 15, China 45, Singapore 22, Japan 55.97, Australia 45, and Singapore 22 per cent of tax charges.
1. Who is the highest taxpayer in India in FY 2023–24? Reliance Industries is the highest tax-paying company, and Akshay Kumar tops among individual celebrities.
If the tax collector responsible for collecting the tax and depositing the same to the Government does not collect the tax, then he will be liable to pay interest at the rate of 1% per month or part of the month in addition to the amount of TCS which he fails to collect.
TCS changes summary
To sum up the TCS rule changes effective from April 2025: No TCS for foreign remittances up to Rs. 7 lakh. 0.5% TCS removed on education loans taken from authorised institutions.