This article shows the impact of the new 20% TCS rule on all investments under the Liberalised Remittance Scheme from 1st July 2023 onwards.

Originally published: 19-Apr-2023

Updated: 29-Jun-2023 - post LRS 20% postponed to 1st Oct 2023

Updated: 01-Sep-2024 - LRS rules updated post Budget 2024

Updated: 31-Mar-2025 - LRS rules updated post Budget 2025

📚 Table of Contents

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• What is the 20% TCS on LRS rule as per Budget 2023?
• How does the TCS rule work?
• Adjusting TCS against advance tax payment
• Impact of TCS if you do not have enough advance tax to adjust

What is the 20% TCS on LRS rule as per Budget 2023?

The Liberalised Remittance Scheme (LRS) allows you to remit up to $250,000 per financial year for foreign travel, education in foreign colleges and the purchase of stocks, ETFs and mutual funds in foreign stock exchanges. LRS allows resident Indian investors to invest directly in ETFs tracking the S&P500 or global market indices (like VWRA) or hyped stocks like Tesla and Apple.

In Budget 2023, a new rule has been introduced that all LRS investments for investing and foreign travel must undergo 20% TCS, which will set off against future tax liabilities.

Before Budget 2023, this TCS amount was 5% over ₹7 lakhs a year. As per the latest press release on 28-Jun-2023, TCS is applicable at 5% till ₹7 lakhs and 20% above ₹7 lakhs/year. The updated rules are here: How the government has provided relief to travellers and international investors by tweaking the LRS and TCS rules from 1st Oct 2023?.

The TCS rules keep changing every year. The latest ones are here:

TCS rates from 1st April 2025 onwards:

Purpose of Remittance	TCS Rate	Threshold
LRS for education purpose from education loan	NIL	Any Amount
LRS for the purpose of education, other than above, or for medical treatment	Up to ₹10 Lakh: NIL Above ₹10 Lakh: 5%, 10% if sender PAN is inoperative	₹10 Lakh per FY
Any other purpose under LRS (including overseas tour packages or investing in foreign stocks/ETFs)	Up to ₹10 Lakh: NIL Above ₹10 Lakh: 20%	₹10 Lakh per FY

How does the TCS rule work?

TCS = Tax Collected at Source

TCS is not TDS which is Tax Deducted at Source. In the case of TDS, a bank paying interest, for example, deducts a part of the interest payment as tax. You must pay the rest of the tax, as per the tax bracket, at the time of tax filing. You can read more here: Frequently asked questions on Tax Deducted at Source (TDS): the complete guide.

TCS is a tax collected in advance for the sole purpose of tracking an expenditure. It will be adjusted against advance tax or during the filing of tax returns.

The TCS amount is over and above the LRS amount you send out.

Adjusting TCS against advance tax payment

Due date	Advance tax payable
15th June	15%
15th September	45%
15th December	75%
15th March	100%

In each of the above cases, you need to subtract the advance tax already paid.

All taxpayers with more than ₹10,000/year tax liability must pay advance tax as per the schedule above. Since income tax from salary is deducted and paid by the employer, this advance tax must be paid on other sources of income like rent, interest from FD, dividends from stocks and mutual funds, capital gains on the sale of stocks, mutual funds or house etc.

You can adjust the TCS amount on LRS against this advance tax. However, if you do not have advance tax due, you must wait for tax filing time and then claim a refund.

Impact of TCS if you do not have enough advance tax to adjust

In the chart, we show the impact of ₹10 lakhs investment, growing at 5% a year, made on 15-Aug every year. In the first year, the TCS is ₹2 lakhs which is refunded the next August after the tax return is filed in July.

The following year ₹10.5 lakhs investment is made (5% increase) while the effective TCS (₹2.1lakhs for this year minus the ₹2 lakhs refund from last year) is only ₹10,000.

Year	Gross Investment	TCS (after refund)	Net investment
2025	10,00,000	2,00,000	8,00,000
2026	10,50,000	2,10,000	10,40,000
2027	11,02,500	2,20,500	10,92,000
2028	11,57,625	2,31,525	11,46,600
2029	12,15,506	2,43,101	12,03,930
2030	12,76,282	2,55,256	12,64,127
2031	13,40,096	2,68,019	13,27,333
2032	14,07,100	2,81,420	13,93,699
2033	14,77,455	2,95,491	14,63,384
2034	15,51,328	3,10,266	15,36,554
2035	16,28,895	3,25,779	16,13,381
2036	17,10,339	3,42,068	16,94,050
2037	17,95,856	3,59,171	17,78,753
2038	18,85,649	3,77,130	18,67,691
2039	19,79,932	3,95,986	19,61,075
2040	20,78,928	4,15,786	20,59,129
2041	21,82,875	4,36,575	21,62,085
2042	22,92,018	4,58,404	22,70,190
2043	24,06,619	4,81,324	23,83,699
2044	25,26,950	5,05,390	25,02,884

We have deliberately timed the investment so that the tax refund is obtained around the same time to offset the TDS. You invest once you receive the TCS refund.

This way, the impact of the 20% TCS is only for the first year. From the next year onwards, there is a minimal impact.