Global payments
Posted on Apr 1, 2025
Ever sent or received money internationally and got hit with an unexpected tax deduction? You’re not alone. Whether you’re a freelancer working with international clients, an exporter bringing in foreign revenue, or a parent sending tuition fees abroad, foreign remittance tax can feel like a confusing mess.
But here's the catch—once you learn the rules, it's less intimidating than you think. Let's cut it down to simple language, just the facts you really need to know.
What is Foreign Remittance Tax? (And Who Needs to Pay It?)
First of all—what is foreign remittance tax?
It's a tax withheld at source, i.e., TCS (Tax Collected at Source) under Liberalised Remittance Scheme (LRS). Put simply, when you're making payments abroad for some specific reasons, the government levies a small percentage of it as tax before it is even credited out of your account.
Who Is Required to Pay It?
Freelancers & Exporters – When you're making foreign remittances, you don't pay TCS, but there are rules that you have to comply with.
Business Owners – If you're remitting money to international vendors, TCS can be applied.
Parents Remitting Money for Education – You can claim exemptions, but there are strings attached.
Anyone Going Abroad – Some remittances for travel can also be taxed.
What you need to know is which group you belong to and what tax is applicable (or not applicable) to you.
LRS Limit and TCS Slabs – Explained
The Liberalised Remittance Scheme (LRS) permits Indian residents to remit a maximum of $250,000 per financial year outside India for different purposes. But that's where TCS comes into play:
5% TCS – If sending money outside India for education (in case the amount exceeds ₹7 lakh) or for medical treatment.
20% TCS – For all other remittances, such as investments, gifts, and foreign travel.
Who Gets Exempted?
If you’re sending money for education via a loan, the TCS is 0.5% instead of 5%.
Payments for medical emergencies also get relaxed tax treatment.
Want to avoid unnecessary taxes? Make sure you’re using the right RBI purpose code while making international transfers.
Read More: How to Comply with RBI Regulations on Cross-Border Payments
Real-Life Scenarios Where TCS Applies
Still confused? Let’s put this into perspective with some real-world scenarios:
Scenario 1: Receiving Freelance Payments
If you're an Indian freelancer being paid by overseas clients, cheer up—TCS doesn't concern you. But you still have to follow RBI guidelines, such as using the appropriate purpose code and maintaining proper documentation.
Scenario 2: Payment for Software or Services Overseas
Suppose you operate a business in India and have to make payments for software subscriptions or foreign consultants. TCS might charge—and not accounting for that in your expenditure might catch you off guard.
Scenario 3: Transferring Money for Tuition Fees or Travel
If you’re sending money for education, you’ll be charged TCS only after ₹7 lakh. But if you’re just transferring money to a relative abroad, expect 20% TCS.
Read More: What Is the Liberalised Remittance Scheme (LRS)?
What is RDA Remittance & Why It Matters?
Ever heard of Rupee Drawing Arrangement (RDA)? If you’re dealing with foreign remittances, this could be a game-changer.
What is RDA?
It's an RBI-approved system in which money transfers occur via exchange houses and banks with special arrangements.
Why Use It?
It's a more regulated, safer method of transferring funds.
It's usually quicker than conventional SWIFT transactions.
It can save businesses from LRS-related hassles in certain situations.
Should you use LRS or RDA? It depends on the nature of the remittance, but using the right method can save you money and compliance issues.
Recent Updates on Foreign Remittance Tax
Tax laws do not remain the same and becoming updated is utmost important. Among the recent modifications are:
Rates of TCS slabs getting adjusted for varied remittance streams.
Changes implemented in documentation from businesses and freelancers.
Clarity from the government regarding RBI conformity in foreign deals.
Want authoritative updates? Do not forget to refer to official RBI notifications or take the counsel of a taxation expert to face no surprises.
Common Mistakes to Avoid in Remittance Taxes
Most individuals unnecessarily pay taxes because they do not know how things work. Here are the most popular errors:
Using the Wrong Purpose Code – Getting the wrong RBI purpose code can cause delays or compliance risks.
Not Filing Form 15CA/CB – In case it is needed, omitting these forms can delay your transactions.
Using Non-Compliant Payment Channels – Not all platforms operate under RBI guidelines. Always use compliant channels for international payments.
Read More: What Are RBI Purpose Codes for Inward Remittance?
How Infinity Makes Seamless & Compliant Remittance Easy
Let's get real—foreign remittance tax can be daunting. But imagine if you had a payment system that does compliance for you.
Why Infinity?
No surprise charges – You know exactly what you're paying before the transaction that is flat 0.5% transaction fee but no Fx markup.
RBI-compliant transactions – Purpose codes, FIRA, e-BRC—all taken care of seamlessly.
Faster settlements – No delays, just seamless payments.
Read More: Best Way to Receive International Payments in India
Final Thoughts – Get Paid Easily
No one likes surprises when it comes to money—especially when it involves taxes and compliance.
But with the right knowledge and the right payment partner, handling international remittances can be stress-free.
If you’re a freelancer, exporter, or business owner dealing with global payments, Infinity ensures every transaction is smooth, transparent, and fully compliant.
Sick of guessing foreign remittance taxes? Streamline your payments with Infinity today.
FAQs
1. What is the tax on sending money abroad from India?
It varies based on the purpose—5% TCS for education (over ₹7 lakh), and 20% for the majority of other remittances.
2. Do exporters or freelancers have to pay TCS?
Freelancers who earn remuneration from overseas clients do not pay TCS but must adhere to RBI guidelines. Exporters might be taxed differently depending on the model of their business.
3. What are the thresholds prior to tax on foreign remittance?
You can send up to $250,000 for every financial year under LRS. TCS is applied depending on the category and size of the transaction.
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