Foreign Remittance and LRS: Tax Rules NRIs & Indians Must Know

Introduction

In today’s globalised world, foreign remittances are a common financial transaction for both Indian residents and NRIs. Whether you’re a parent sending money to your child studying abroad, an NRI transferring funds home, or a business paying overseas vendors, understanding the tax rules under Foreign Remittance and the Liberalised Remittance Scheme (LRS) is critical.
In this 2025 guide, Makwana Sweta & Associates, a trusted team of Chartered Accountants in Mumbai, simplifies everything you need to know about the Foreign Remittance Tax in India and LRS.

What is Foreign Remittance?

Foreign remittance refers to the transfer of money from India to a foreign country (outward remittance) or from a foreign country to India (inward remittance). It can be:

Personal (family maintenance, travel, gifts, etc.)
Educational
Business or investment related

For Indian residents, these transfers fall under the Liberalised Remittance Scheme (LRS) governed by the Reserve Bank of India (RBI).

Liberalised Remittance Scheme (LRS) – Overview

Introduced by the RBI, the LRS allows Indian residents to remit up to USD 250,000 per financial year (April–March) for permitted current and capital account transactions, such as:

Travel and education
Gift or donation
Medical treatment
Purchase of property abroad
Investments in foreign securities

NRIs are not allowed to use LRS.

TCS on Foreign Remittance – As per Budget 2025

The Indian government levies Tax Collected at Source (TCS) on foreign remittances under Section 206C(1G) of the Income Tax Act.

Latest TCS Rates (FY 2025-26):

Purpose	Amount Threshold	TCS Rate
Education (with loan)	Above ₹7 lakh	0.5%
Education (without loan)	Above ₹7 lakh	5%
Medical Treatment	Above ₹7 lakh	5%
Any other purpose (e.g. investments, travel, gifts)	Above ₹7 lakh	20%

Note: No TCS is levied if total remittance during the year is under ₹7 lakh.

How Does TCS Work?

If you remit funds under LRS:

The bank or authorised dealer collects TCS.
TCS is deposited with the Income Tax Department.
You can claim this as a credit while filing your ITR or seek a refund.

Example:
If you remit ₹10 lakh for foreign travel, TCS @20% = ₹2 lakh.
This ₹2 lakh can be adjusted in your income tax return.

Is TCS a Final Tax?

No, TCS is not a final tax. It’s similar to TDS. You can:

Adjust it against your total tax liability
Claim a refund if your actual tax liability is lower

Consult a CA in Mumbai to help optimise your tax liability and file returns correctly.

What About Inward Remittance?

There is no tax on inward remittance in India. However, be cautious:

Large or suspicious inward remittances may trigger scrutiny
Ensure that funds are received from legitimate sources
Declare any foreign income if you qualify as a Resident and Ordinarily Resident (ROR)

FEMA Compliance – Don’t Ignore This!

All remittances must be in compliance with the Foreign Exchange Management Act (FEMA). Violations can lead to:

Penalties up to 3x the remitted amount
Investigation by ED (Enforcement Directorate)

Some common FEMA violations include:

Sending money abroad for prohibited purposes
Structuring personal gifts to bypass LRS limit
Non-reporting of foreign assets (for residents)

Documents Required for LRS Transfers

Before remitting under LRS, the authorised dealer (usually your bank) will ask for:

PAN Card
A2 Form
LRS Declaration Form
Purpose of remittance
Identity/address proof
Invoice or admission letter (for education)
Medical estimates (for treatment)

Tips for Compliant and Tax-Efficient Remittance

Plan Ahead: Don’t wait till March-end to remit under LRS.
Track Total Remittances: To avoid crossing the ₹7 lakh threshold unintentionally.
Retain Documentation: Every remittance must be supported by purpose proof.
Declare Foreign Investments/Assets: Especially if you become a resident again after NRI status.
Hire a Chartered Accountant: Professionals like Makwana Sweta & Associates, leading Tax Consultants in Mumbai, help streamline remittances, ensure compliance and maximise tax efficiency.

Special Situations

For NRIs:

Inward remittances to India are generally exempt from tax unless deemed income.
NRO accounts are subject to TDS on interest income.
Repatriation from India is allowed within limits and requires documentation.

For Minors:

LRS can be used on their behalf by guardians. PAN card is mandatory.

Government Circulars and Legal Links (Outbound)

Final Words

Foreign remittance and tax laws under LRS are evolving rapidly. With high TCS rates and tighter scrutiny in FY 2025-26, even small mistakes can lead to significant tax or compliance burdens.

Let experts at Makwana Sweta & Associates, top-rated Chartered Accountant Services in Mumbai, handle your remittance planning, documentation, and compliance with accuracy and care.