LRS and TCS in 2026: The ₹10 Lakh Threshold, 20% Collection and How to Get Every Rupee Back

The two rules that govern every rupee you send abroad

Any Indian resident individual moving money out of the country runs into two separate regimes that are often confused with each other.

The first is the RBI's Liberalised Remittance Scheme (LRS), a FEMA rule that caps how much you may remit: USD 2,50,000 per financial year per individual, including minors. This is a quantity limit, not a tax.

The second is Tax Collected at Source (TCS) under Section 206C(1G) of the Income-tax Act, administered by the CBDT. This is not a tax on the remittance — it is an advance collection, fully adjustable against your final income tax liability or refundable if you have none.

Confusing the two causes two expensive mistakes: people assume TCS is a cost (it isn't), and people assume staying under the TCS threshold keeps them outside LRS reporting (it doesn't). This article untangles both.

The LRS limit: what counts and what doesn't

Permitted purposes under LRS include private travel, gifts to relatives abroad, maintenance of close relatives, education, medical treatment, emigration, and investment in overseas shares, debt instruments and property. Prohibited uses include margin trading, lottery, purchase of foreign currency convertible bonds issued by Indian companies abroad, and remittances to countries identified as non-cooperative by FATF.

Key operational points:

• •The USD 2,50,000 ceiling is per person per financial year, so a family of four can collectively remit USD 10,00,000 in a year, provided each remittance is funded from that individual's own funds.
• •A minor's remittance requires the Form A2 to be countersigned by a natural guardian.
• •You must have a PAN for all LRS transactions.
• •Remittances are routed through an AD Category-I bank with Form A2 declaration; the bank reports them to the RBI, and the data flows into your Annual Information Statement (AIS).
• •Loan-funded remittances for investment purposes are restricted — banks generally will not fund LRS investment remittances with credit.

Money kept abroad in a foreign bank account out of LRS remittances may be retained and reinvested; it need not be repatriated. But it must be disclosed (see Schedule FA below).

The TCS slab structure applicable in FY 2026-27

Budget 2025 raised the TCS exemption threshold from ₹7 lakh to ₹10 lakh with effect from 1 April 2025, and removed TCS entirely on education remittances funded by an education loan. The structure that applies today:

Two structural points matter. The ₹10 lakh threshold is cumulative across the financial year per remitter per authorised dealer — your bank tracks your running total, and TCS applies only to the amount *exceeding* ₹10 lakh, not retrospectively on the whole sum. And the overseas tour package category is the odd one out: it has no nil band at all, attracting 5 per cent from the first rupee.

Note also that Section 206C(1H) — TCS on sale of goods above ₹50 lakh — was omitted from 1 April 2025, so that no longer overlaps with business purchases.

Worked example: an investor remitting ₹25 lakh

Suppose Priya, a Bengaluru-based salaried professional in the 30 per cent slab, remits ₹25,00,000 during FY 2026-27 to fund a US brokerage account.

• •First ₹10,00,000: nil TCS
• •Balance ₹15,00,000 at 20 per cent: ₹3,00,000 TCS collected
• •Total debited from her account: ₹28,00,000

That ₹3,00,000 is not gone. It appears in her Form 26AS and AIS as a TCS credit. If her final tax liability for the year is ₹4,20,000 and her employer has already deducted ₹4,20,000 as TDS, she claims the ₹3,00,000 TCS in her ITR and receives a full refund — but only after filing, which could be 12–18 months after the money left her account.

The cash-flow hit is the real cost, not the tax.

How to stop TCS from blocking your cash flow

Since 1 October 2024, Section 192(2B) permits a salaried employee to report TCS (and non-salary TDS) to the employer using Form 12BAA, so the employer reduces monthly salary TDS accordingly. This is the single most underused provision in the entire TCS framework.

Using Priya's numbers: if she submits Form 12BAA in, say, July 2026 declaring ₹3,00,000 of TCS, her employer can stop deducting salary TDS for the remaining months until the credit is absorbed — recovering the money within the same financial year instead of waiting for a refund.

Other planning levers:

1. Split across family members. Each adult has an independent ₹10 lakh nil-TCS band and an independent USD 2,50,000 LRS limit. A ₹30 lakh family remittance made by three individuals of ₹10 lakh each attracts zero TCS. The funds must genuinely belong to each remitter — and be alert to Section 64 clubbing if you gift to a spouse and the income is then taxed in your hands.

2. Use an education loan for education remittances. A loan from a notified financial institution makes the remittance entirely TCS-free at any amount, and the interest qualifies for Section 80E deduction with no upper cap for eight assessment years (available only under the old regime).

3. Reduce advance tax instalments. Under Section 234C, TCS already collected counts toward tax paid. Factor it in before paying the 15 September and 15 December instalments.

4. Reconsider the structure. Investing in overseas equities through India-domiciled international funds of funds avoids LRS and TCS altogether — though it brings its own constraints, including the SEBI/RBI industry-level overseas investment limits that have periodically caused subscription halts.

5. Book tour packages abroad where possible. TCS at 5 per cent from rupee one applies to packages *purchased in India*. Independently booking flights and hotels directly with foreign providers falls under the ordinary 20 per cent-above-₹10-lakh band, which for most holidays means nil.

Schedule FA: the disclosure with a ₹10 lakh penalty

This is where the serious risk sits. Once you own foreign shares, a foreign bank account, foreign ESOPs or offshore property, you must disclose them in Schedule FA of your ITR — and Schedule FSI/TR if you are claiming foreign tax credit using Form 67.

Critical details:

• •Schedule FA follows the calendar year ending within the relevant previous year, not the Indian financial year. For ITRs filed for FY 2025-26, the reporting period is 1 January 2025 to 31 December 2025.
• •Only ordinarily resident individuals must file Schedule FA. Non-residents and RNORs are exempt.
• •Reporting is required even if the asset generated no income and even if the value is small.
• •Non-disclosure attracts a penalty of ₹10,00,000 per year under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015, with prosecution exposure — vastly disproportionate to the sums usually involved.
• •Schedule FA cannot be fixed through ITR-U; the updated-return route under Section 139(8A) does not cure a Black Money Act default.

The Income Tax Department now receives offshore account data through CRS and FATCA exchanges and has been issuing systematic notices to taxpayers whose foreign holdings appear in exchanged data but not in Schedule FA. Assume they already know.

Taxation of the returns themselves

Remittance and disclosure aside, the income is taxed in India because residents are taxed on worldwide income:

Form 67 must be filed on or before the ITR due date to claim foreign tax credit — a late Form 67 is the most common reason credit is denied.

E-Square Tip: Build one spreadsheet with three columns — cumulative LRS usage in USD, cumulative remittance in ₹ against the ₹10 lakh TCS threshold, and the calendar-year peak and closing value of every foreign asset you hold. Update it after every single remittance. The LRS column prevents a FEMA breach, the TCS column tells you exactly when to file Form 12BAA with your employer, and the third column means your Schedule FA takes ten minutes instead of becoming a ₹10 lakh penalty.