All you need to know about the introduction of new income tax provisions for forex transactions under LRS 

A new income tax rule was introduced where the tax collected at source (TCS) for forex transactions under the Liberalized Remittance Scheme (LRS) and for buying foreign travel packages came into effect on 1 October 2020. Earlier the rule was supposed to come into effect on 1 April 2020, but the date was pushed. 

 Rules regarding the applicability of TCS 

You must be aware regarding the amendments in rules. The following changes in rules are given below: 

  • The provision for change in TCS for forex transaction came into effect on 1 October 2020 instead of earlier planned 1 April 2020. 
  • In case the transaction amount is more than the amount specified by the government, then the provisions pertaining to TCS will be affect you. As per the laws of Income Tax, TCS will be levied on foreign transactions under the LRS, if the remitted amount is more than Rs.7 lakh in a financial year. You will not be required to pay TCS if the remitted amount is below Rs.7 lakh. 
  • As per LRS, you can remit up to $25,000 for different purposes such as sending gifts, medical treatment, investment purposes, etc.  
  • In the event of an amount remitted for purposes related to pursuing of an educational degree from a financial institute, TCS will be charged at the rate of 0.5% for the amount above Rs.7 lakh. 
  • In case you are looking to purchase foreign travel packages, then TCS at the rate of 5% will be charged regardless of the amount. 
  • The rates for TCS will increase if the remitter is a non-resident as per the Income Tax Act, 1961. In this case, the Health and Edication Cess will also increase. 

Foreign exchange facilities generally taken for different reasons under LRS are: 

A – Remittances to foreign tour companies and operators 

B – Remittances for pursuing education abroad 

C – Other remittances such as investing in stocks, buying a house, etc. as applicable under the rules of LRS 

 How will the tax be collected? 

To help you get a clear picture regarding how the TCS will be charged on different forex transactions as per the rules under LRS, a table is being provided below: 

Month during which the transaction took place  Amount   TCS Amount  Applicability of TCS 
June 2020  Rs.3 lakh  Nil  No TCS will be charged since the amount is below Rs.7 lakh 
October 2020  Rs.5 lakh  Rs.5,000  TCS will be applicable as a rate of 5% is chargeable since the amount is more than Rs.5 lakh. The rate is applied on a sum of Rs.1 lakh which is (Rs.3 lakh + Rs.5 lakh) – Rs.7 lakh 
December 2020  Rs.3 lakh  Rs.15,000  TCS applicable on the entire amount since the threshold limit was crossed in October 2020 
January 2021  Rs.5 lakh  Rs.25,000  TCS applicable on the entire amount since the threshold limit was crossed in October 2020 


You can claim the credit of the tax accumulated on the above-mentioned transactions. You must note that the transaction amount will reflect on Form 26AS and tax credit can be availed for the TCS. This will help you reduce your tax liability during the filing of income tax returns.