MORGAN BLAKE ADVISORY LLP

Taxation of Foreign Remittances

“Foreign remittance” tax questions come up in two very different contexts — individuals sending money abroad for education, travel or investment, and businesses making payments to overseas vendors, consultants or related entities. The two are governed by different mechanisms entirely, and conflating them is one of the most common sources of confusion.

Outward Remittances by Resident Individuals: TCS Under the LRS

Indian residents can remit up to USD 250,000 per financial year abroad for permitted purposes under the RBI's Liberalised Remittance Scheme (LRS). TCS is deducted by the bank or authorised dealer at the time of remittance, once cumulative remittances exceed ₹10 lakh in a financial year.

Important practical points:

• TCS is not an additional tax — it's adjustable against your final income tax liability and fully refundable through your ITR if your actual liability is lower.
• TCS credit belongs to the remitter's PAN, not the beneficiary — a parent remitting for a child's overseas education claims the credit in their own return.
• NRO-to-NRE transfers and remittances by NRIs are not subject to LRS TCS at all — this regime applies specifically to resident Indians.
• The LRS limit and TCS threshold reset every financial year on 1st April; remittances spanning the year-end can sometimes be planned to use both years' thresholds.

Payments to Non-Residents by Businesses: TDS, Not TCS

This is where most confusion arises. Business payments to a foreign vendor, consultant, or related entity don't fall under the LRS-TCS regime at all. Instead, they're governed by TDS under Section 195 of the Income Tax Act (renumbered under the new Income Tax Act effective 2026 — confirm current section references with your advisor).

The core question: is the payment chargeable to tax in India? If yes, TDS must be deducted before remittance, at a rate determined by domestic tax law and any applicable Double Taxation Avoidance Agreement (DTAA).

Form 15CA and 15CB: The Compliance Backbone

Banks will not process the foreign remittance without these forms in place where applicable — making this a procedural gatekeeper as much as a tax compliance step.

Why DTAA Matters

India has Double Taxation Avoidance Agreements with most major trading partners, frequently providing for a lower withholding tax rate than the domestic rate — sometimes substantially lower. To claim treaty benefit, the foreign recipient typically needs to provide a Tax Residency Certificate and supporting documentation. Businesses that default to the domestic TDS rate without checking DTAA provisions often pay more tax than legally required.

A Note on the New Income Tax Act

The Income Tax Act, 2025 (effective from April 2026) has reorganised and renumbered a significant portion of the compliance framework — section references and some form numbers have changed. Businesses and individuals working from older guidance or templates should confirm current section and form references with their advisor rather than relying on familiar but outdated citations.

What We Recommend

1. Individuals: track cumulative LRS remittances against the ₹10 lakh threshold, and confirm whether an education-loan exemption applies.
2. Businesses: build Form 15CA/15CB into your standard payment process for any foreign vendor or consultant payment.
3. Always check DTAA applicability before applying a default domestic TDS rate on payments to non-residents.
4. Maintain documentation — Tax Residency Certificates, invoices, and the basis for tax treatment — in case of scrutiny.

Foreign remittance taxation sits at the intersection of FEMA, income tax, and treaty law. If you're planning a cross-border remittance, whether personal or business, it's worth having the tax treatment reviewed before you initiate the transfer.

Contact us: info@morganblakeadvisory.com  |  +91 98184 77953