Summary:-The purchase of forex under LRS (Except Education and Medical visits)will be subject to tax collected at source (TCS) of 20% over a threshold of Rs 10 lakhs in a financial year. Forex purchases of less than Rs 10 lakh in a financial year are not subject to any Tax Collected at Source (TCS).
If you are planning a trip abroad, then you need to know this critical information about changes in the TCS threshold. In the Budget 2025, the Tax Collected at Source (TCS) threshold under LRS has been proposed to increase from ₹7 lakh to ₹10 lakh. Hence, the purchase of forex worth more than 10 lakhs in a financial year will be subject to an increase in the TCS (Tax Collected at Source) rate of 20 percent. The good thing is that Forex transactions below Rs 10 lakh in a financial year will not be subject to Tax Collected at Source (TCS).
Let’s examine all aspects related to the New Tax Collected at Source (TCS) on foreign travel in detail in this blog.
What is the Meaning of Tax Collected at Source (TCS)?
Tax Collected at Source (TCS) is a type of tax collected by the seller of specified goods from the buyer. The seller of specific items is liable to collect tax from buyers at a prescribed rate and deposit the same with the government. A list of goods on which sellers must collect sales tax from buyers is provided in section 206C of the Income Tax Act. In foreign travel, TCS is a tax collected when a customer purchases a Forex product or an international tour package for all purposes covered under LRS.
An Analysis of the Amendments to the TCS Regime
Starting October 1, 2023, a revised Tax Collected at Source (TCS) regime came into effect with 20% TCS on forex purchases worth more than ₹7 lakh in a financial year. Now as per the latest update in Budget 2025, the threshold for TCS on forex purchases under the Liberalized Remittance Scheme (LRS) (excluding those for education and medical purposes) has been increased from ₹7 lakh to ₹10 lakh. This means that forex transactions up to ₹10 lakh in a financial year will not attract TCS, while purchases exceeding this limit will be subject to a TCS of up to 20%.
The following table shows the earlier TCS rate and the proposed TCS rate:
| Type of Transaction | Previous Rate | New Rate Proposed in Budget 2025 |
|---|---|---|
| Purchase of Forex under LRS | 20% (only for spends over Rs. 7 lakhs in the financial year) | 20% (only for spends over Rs. 10 lakhs in the financial year) |
| Purchase of Forex under Education and Medical Visits | 5% (only for spends over Rs. 7 lakhs in the financial year) | 5% (only for spends over Rs. 10 lakhs in the financial year) |
| Purchase of Forex under business | 0% | 0% |
To understand how this change in TCS makes your international travel costlier, let’s look at these examples.
1. Suppose you purchased a ₹9,00,000 forex during a financial year. Earlier, as per the rate starting October 1, 2023, forex purchases were subject to a 20% TCS on amounts exceeding ₹7 lakh. This meant you would have paid ₹40,000 as TCS {(₹2,00,000 * 20/100)}, making the total payable amount ₹9,40,000. However, with the revised threshold in Budget 2025, there is no TCS on forex purchases up to ₹10 lakh, meaning you now save ₹40,000 and only pay ₹9,00,000 for your trip.
2. Let’s assume you want to purchase forex worth ₹7,50,000. Earlier, under the previous TCS rules starting October 1, 2023, a 20% TCS would have been applied on the amount exceeding ₹7 lakh. This meant a TCS of ₹10,000 {(₹50,000 * 20/100)}, bringing your total payable amount to ₹7,60,000. However, with the revised threshold in Budget 2025, there is no TCS on forex purchases up to ₹10 lakh. This means you can now buy ₹7,50,000 worth of forex without paying any additional TCS, saving ₹10,000 compared to the earlier rule.
Should You Worry About TCS on Foreign Travel?
Now you might be wondering that what if you are purchasing forex worth more than 10 lakh in a financial year and paying TCS. Well, this should not be a cause of concern. The reason is simple. TCS isn’t an additional tax. It is important to note that TCS can either be adjusted against your total income tax liability or claimed back while filing income tax returns. Rest assured you will get your TCS amount back without any hassle and hence you don’t have to lose sleep over it.
A TCS certificate will be provided to customers. This certificate can be used to claim TCS while filing the income tax return. In the case of salaried employees, travelers can share the TCS certificate or acknowledgment receipt with their employer who may adjust TCS against the TDS payable.
To help you understand this better, here are a few examples:
1. Suppose that an individual has purchased forex worth Rs 10,20,000 in a financial year. According to the revised TCS regulations, Rs (10,20,000-10,00,000) = 20,000*20/100 = Rs. 4000 will be deducted as TCS. Let’s assume that when calculating his or her advance tax or filing his or her income tax returns, the overall tax liability is Rs 2,00,000. According to Income Tax rules, an individual can adjust the TCS against his or her overall tax liability. Therefore, the individual’s net tax liability will only be Rs 1,96,000.
2. Let’s assume that an individual buys forex worth Rs 11,00,000, so your service provider or bank will deduct Rs (11,00,000-10,00,000) = Rs 1,00,000*20/100 = ₹20,000 as TCS. Suppose your tax liability for the year is Rs 30,000. The TCS of Rs 20,000 will be adjusted against your tax liability, leaving you with only Rs 10,000 as your tax liability.
What Are the Steps to Claim the TCS Back?
If you are subject to TCS, it is crucial that you understand the financial implications and know how to claim your TCS. To claim TCS back, follow these steps:
1. Please ensure that you have all the required documents with you, including the TCS certificate, the acknowledgment receipt, and Form 26AS, if applicable.
2. The refund claim form should be filled out. You must attach all the necessary documents along with the refund claim form.
3. To claim a refund, submit the form as well as the documents to the Income Tax Department.
4. A refund claim will be processed by the Income Tax Department and the amount will be credited to the individual’s bank account.
