As we approach Budget 2026, it is time to look back on the past and thank the finance minister for presenting an excellent and people-oriented Budget 2025 on February 1, 2025. It provided significant reliefs to middle-class taxpayers. The middle class is now expanding its net and spending money on foreign exchange for foreign travel, education abroad for their children, purchasing movable and immovable assets abroad, and maintenance of relatives staying abroad.

In a move to strengthen fiscal oversight and streamline foreign exchange transactions, the Indian government introduced Tax Collected at Source (TCS) under the Indian Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) on remittances made under the Liberalised Remittance Scheme (LRS), which route is available to resident Indians.

TCS, one of the mechanisms to check tax evasion

TCS is a mechanism under which an additional amount of tax is collected from buyers of certain goods or services, such as alcohol, timber, minerals, motor vehicles, and foreign remittances. The prominent ones are motor vehicles, foreign travel, foreign education, stocks of foreign companies, and immovable properties. The collected tax is then deposited with the government, and a TCS certificate is issued to the buyer, which can be claimed as a credit against the taxpayer’s tax liability in their income tax return. The provisions related to TCS are covered under section 206C of the Act. The rate of TCS generally ranges from 1% to 5% and is as high as 20% in the case of Liberalised Remittance Scheme (LRS).