Since 2023, banks in India have been deducting up to 20% Tax Collected at Source (TCS) on money sent abroad. Searches for "TCS on foreign remittance NRI" spiked almost overnight, and the confusion was understandable.
Then Budget 2026 changed the rates again, effective April 1, 2026. If you are an NRI based in the US and wondering whether any of this applies to you, the short answer is: probably not.
But the full answer is more nuanced, and getting it wrong, especially if you are planning to return to India soon, can cost you.
What Changed: TCS on Foreign Remittance Under Section 206C
Section 206C(1G) of the Income Tax Act, 1961 requires banks and authorized dealers to collect Tax Collected at Source when an Indian resident sends money abroad under the Liberalized Remittance Scheme (LRS). LRS is the RBI framework that allows resident individuals to send up to $250,000 abroad per financial year.
TCS is not an additional tax. It is collected upfront by your bank and credited to your account in Form 26AS. You adjust it against your final tax liability when you file your income tax return, or claim a refund if you have no liability.
Here is how the rules have evolved:
- FY 2020-21: Section 206C(1G) introduced. TCS at 5% on LRS remittances above Rs. 7 lakh for most purposes.
- Finance Act 2023: The rate for non-education and non-medical remittances jumped from 5% to 20% above Rs. 7 lakh. Education and medical TCS stayed at 5%.
- Finance Act 2025 (April 1, 2025): Threshold raised from Rs. 7 lakh to Rs. 10 lakh across the board.
- Budget 2026 (April 1, 2026): Education and medical TCS rate cut from 5% to 2%. Overseas tour packages reduced to a flat 2% with no separate threshold. Investment and other remittances remain at 20% above Rs. 10 lakh.
The table below shows the current rates as of April 2026.
| Type of Remittance | Up to Rs. 10 Lakh | Above Rs. 10 Lakh |
|---|---|---|
| Education (loan from financial institution u/s 80E) | NIL | NIL |
| Education / Medical (self-funded) | NIL | 2% |
| Overseas Tour Packages | 2% (flat, no threshold) | 2% |
| Investments, gifts, property purchase, maintenance | NIL | 20% |
TCS is collected at the time of remittance or debit, whichever is earlier. Your bank issues Form 27D as proof of TCS collection. It also appears in your Form 26AS on the income tax portal.
How This Affects NRIs (and When You Are Exempt)
This is the section most articles get wrong. They describe TCS rules in detail but barely mention that the entire framework does not apply to NRIs in the first place.
Most NRIs Don't Fall Under LRS
The Liberalized Remittance Scheme is a Reserve Bank of India framework that governs how resident individuals send money abroad. Under FEMA (the Foreign Exchange Management Act), NRIs are classified as non-residents, which means LRS simply does not apply to them.
NRIs operate under a separate set of FEMA rules for repatriation. If you hold an NRO account with income earned in India, such as rent, dividends, or interest, you can repatriate up to $1 million per financial year to your overseas account. This is governed by FEMA, not LRS, and does not trigger TCS under Section 206C(1G).
Understanding these FEMA rules for NRIs is important before you make any transfer decision based on what your bank tells you.
NRO-to-NRE Transfers Are Explicitly Exempt
Section 206C(1G) contains an explicit carve-out: transfers from an NRO account to an NRE account or to an overseas account are not subject to TCS. This is one of the most misunderstood points, and some banks still get it wrong at the branch level.
Take Priya, an NRI based in New Jersey. She has Rs. 25 lakh sitting in her NRO account from rental income on her flat in Pune. When she transfers that money to her NRE account or remits it to her US bank account, no TCS is deducted. She still needs to ensure TDS was handled correctly on the underlying rental income, and that she complies with FEMA repatriation documentation. But TCS under LRS is not her concern.
When TCS Does Apply to You as an NRI
There is one situation where LRS, and therefore TCS, does become relevant for someone who was previously an NRI: when you return to India and regain resident status.
Your residential status under Indian tax law is determined by how many days you spend in India in a financial year. If you are in India for 182 days or more in a financial year, you qualify as a resident. From that point on, any money you send abroad for investments, education, or any other LRS-eligible purpose is subject to TCS under Section 206C(1G).
Consider Amit. He moves back from the US in December 2026 and spends more than 182 days in India during FY 2026-27. From the day he qualifies as a resident, his outward remittances fall under LRS. If he sends Rs. 15 lakh to a US brokerage account, the Rs. 5 lakh above the threshold attracts 20% TCS, which means Rs. 1 lakh is collected upfront by his bank.
The RNOR (Resident but Not Ordinarily Resident) status provides some tax advantages during the transition period, particularly on foreign income. However, RNOR status does not exempt you from LRS TCS rules. Once you are a resident under FEMA, LRS applies. Read more about RNOR status for returning NRIs to understand how the transition works and how to plan around it.
What You Should Do Now
The right action depends on your current situation.
If you are a confirmed NRI living abroad, verify once with your bank in India that they are not incorrectly deducting TCS on your NRO transfers or repatriation transactions. Branch-level errors do happen. If you spot a wrong deduction, it shows in your Form 26AS and can be claimed as a credit or refund when filing your India ITR.
If you are planning to return to India in the next 12 months, this matters more urgently. The financial year resets on April 1. If you return in the second half of a financial year and cross the 182-day threshold, your outward transfers in the months that follow will attract TCS. Timing large transfers before you cross that threshold, or before you formally return, can make a meaningful difference. An InvestMates advisor can model this scenario for your specific return date and transfer amounts.
If you are a resident Indian with education expenses or medical costs abroad, the Budget 2026 rate cut from 5% to 2% on LRS remittances above Rs. 10 lakh is a real saving. On Rs. 20 lakh in education remittances, TCS drops from Rs. 50,000 to Rs. 20,000 from April 2026. The full context of Budget 2026 NRI highlights is worth reading to understand all the changes that came in this year.
If TCS was deducted and you want a refund, file your India income tax return and claim the TCS credit. Use your Form 26AS to verify the exact amount collected and ensure Form 27D was issued by your bank.
Conclusion
For most NRIs living abroad, TCS on foreign remittance under Section 206C does not apply. LRS is a resident-only framework, and your NRO repatriations are explicitly carved out.
But the new TCS rules under Budget 2026 matter if you are returning to India, if you have family members who are residents sending money abroad, or if you hold both statuses across a financial year transition.
If you are unsure about your specific residency and remittance situation, an InvestMates advisor can walk you through the numbers before your next transfer.
Frequently asked questions
Is TCS applicable on foreign remittance by an NRI?
No, in most cases. The TCS provisions under Section 206C(1G) apply only to resident individuals making outward remittances under the Liberalized Remittance Scheme (LRS). NRIs are non-residents under FEMA and operate under separate repatriation rules.
NRO-to-NRE transfers are also explicitly exempt. However, if you have returned to India and regained resident status, LRS does apply to your outward transfers.
What is the TCS limit for foreign remittance in 2026?
The threshold is Rs. 10 lakh per financial year per individual, effective April 1, 2025 (raised from the earlier Rs. 7 lakh). TCS is collected only on the amount above this threshold.
Education remittances financed by a loan under Section 80E remain fully exempt with no threshold limit.
How do I avoid 20% TCS on foreign remittance?
The 20% rate applies only to non-education, non-medical LRS remittances above Rs. 10 lakh. You can avoid it by keeping total remittances in those categories under Rs. 10 lakh per year, splitting them across financial years if timing allows, or routing education and medical costs through the applicable categories (which attract 2% or nil).
TCS is always recoverable against your final tax liability, so it is not a permanent cost even when charged.
Is Section 206C discontinued?
No. Section 206C is active. Section 206C(1H), which covered TCS on sale of goods above Rs. 50 lakh, was discontinued from April 1, 2025. But Section 206C(1G), which covers LRS remittances and overseas tour packages, remains fully in force with updated rates from April 2026.
Can I get a refund if TCS was deducted on my remittance?
Yes. TCS deducted under Section 206C(1G) reflects in your Form 26AS and Annual Information Statement (AIS) on the income tax portal. When you file your India ITR, you can adjust this against your total tax liability. If your tax liability is lower than the TCS collected, you can claim the difference as a refund.
There is no interest on the amount blocked as TCS during the year.
How does TCS on remittance affect my US taxes as an NRI?
TCS is collected by the Indian government and is a credit available only in India's tax system. It does not directly reduce your US tax liability.
NRIs holding both Indian and US tax obligations should understand how TDS and TCS for NRIs interact with their overall India-side tax position before making large transfers.