TDS Implications for Foreign Remittances 

Table of Content

1. How Section 195 Impacts TDS on Foreign Remittance?

2. TDS Rates and Thresholds

3. Compliance Requirements on TDS on Foreign Remittance

4. TDS vs. TCS for Foreign Remittances

5. Exemptions and Special Cases

6. How to Claim a TDS Refund on Foreign Remittances?

7. Common Mistakes to Avoid in Foreign Remittance TDS

8. Conclusion

9. Frequently Asked Questions

TDS on foreign remittance is the tax amount that gets deducted and paid to the Indian Government while transferring funds to a foreign account. The TDS reduces the final sum amount you send or receive. The payer can be an Indian resident, an NRI, an individual working at a corporation, a non-profit organisation, a government agency, a partnership firm, or a foreign company. 

Suppose you have a small business in India and you want to send ₹10 Lakh to a software consultant in Germany for providing you with certain technical services. Now, while you are transferring a taxable amount to a foreign account, you need to pay TDS on Foreign Remittance (subject to DTAA provisions)

As per Section 195 of the Income Tax Act, 1961¹, if the payment to the German consultant is taxable in India and subject to DTAA provisions, tax is to be deducted at 10% (₹1,00,000) plus 4% Health and Education Cess (₹4,000). Accordingly, a net amount of ₹8,96,000 will be remitted to the consultant after depositing ₹1,04,000 with the Income Tax Department.

How Section 195 Impacts TDS on Foreign Remittance?

According to Section 195 of the Income Tax Act 1961¹, the payer has to deduct TDS either at the time of crediting money to the payee’s account or at the time of making the payment, whichever takes place first. If the amount to be transferred is taxable in India, regardless of the amount, the payer must deduct TDS. In this context, there is no threshold exemption applicable. 

Furthermore, as per the Liberalised Remittance Scheme (LRS), a foreign exchange policy introduced by the Reserve Bank of India (RBI), the process of remitting funds outside India has become streamlined and straightforward. 

When an Indian resident sends money to an NRI account under LRS, the applicable tax in that context is known as Tax Collected at Source (TCS). Banks and authorised dealers collect TCS on foreign remittance. It helps to monitor international fund transfers, curb tax evasion, and eliminate money laundering. For example, TCS will be applicable if you want to transfer funds to your close relative who is studying abroad.

TDS Rates and Thresholds

According to the latest amendments introduced in the Finance Act 2025, TDS on foreign remittances applies once the payment exceeds the specified threshold under Section 195. The rate varies depending on the purpose of remittance.

Let us check the updated rate below:

Here is an example for your better understanding:

Suppose you remit ₹1,00,000 abroad for a technical service that attracts a 10% TDS rate.

Step 1: Calculate TDS = ₹1,00,000 × 10% = ₹10,000.

Step 2: Deduct TDS from the remittance = ₹1,00,000 − ₹10,000 = ₹90,000 (this is the amount remitted).

Step 3: Deposit the ₹10,000 TDS with the Income Tax Department and file Forms 15CA/15CB as applicable.

This example shows how the applicable rate directly affects your final transfer amount.

Compliance Requirements on TDS on Foreign Remittance

• TDS applies to all taxable payments ((e.g., interest, royalty, professional fees, technical services, dividends, etc.)); there are no exemptions available. 

• The TDS rate depends on the provisions of a Double Taxation Avoidance Agreement (DTAA) where the NRIs can avail benefits under Section 90 & 91 of the Income Tax Act, 1961.

• Banks and financial institutions must report details of foreign remittances on the payers’ quarterly TDS returns via Form 27Q 

• Verification of PAN is mandatory before processing remittances by banks and financial institutions for transactions exceeding ₹2.5 Lakh. If PAN is not provided, TDS is deducted at 20% or the prescribed rate under Sec 206AA of the Income Tax Act, 1961. 

• Individuals have to declare details of foreign remittance in their Income Tax Return (ITR). 

• Payers must obtain Form 15CA for taxable remittances and Form 15CB certified by a Chartered Accountant in case of remitting funds more than ₹5 Lakh that are taxable.

TDS vs. TCS for Foreign Remittances

Here is a comparison table showing key differences between TDS and TCS on foreign remittance: 

Exemptions and Special Cases

• Education loans obtained from financial institutions are subject to a tax deduction of only 0.5%. 

• TDS exemption is allowed when the money is transferred directly to a hospital or medical service provider. 

• Senior citizens have a higher threshold of ₹10 Lakh when it comes to TDS on foreign remittance.

How to Claim a TDS Refund on Foreign Remittances?

Here is a step-by-step guide on how you can claim TDS on foreign remittance: 

Step 1: Download Form 16A or TDS certificate From the bank or the deductor (who deducted TDS) or through the TRACES portal., which is crucial for NRIs earning non-salary income from India. 

Step 2: File your Income Tax Return (ITR), indicating that TDS has been paid. 

Step 3: Claim credits for TDS on foreign remittance in the specified section. 

Step 4: If applicable, attach DTAA documents (TRS, Form 10F). 

Step 5: Monitor and track your refund status through the Income Tax Portal.

 Additional Note :       

Ensure your PAN is linked to your bank account, as the refund is directly credited.

Usually, it takes 3 to 6 months to process.     Usually, it takes 3 to 6 months to process.

Common Mistakes to Avoid in Foreign Remittance TDS

The following are some of the most common mistakes often made by remitters while transferring funds internationally: 

• Error in the TDS Rate Application 

Error in applying the TDS rate or providing irrelevant information during application could lead to penalties, tax deductions, and legal consequences. 

• Ignoring TDS on Foreign Remittance Applicability

Lacking sufficient information regarding the applicability of TDS on foreign remittance, ignoring it could lead to negative consequences. That is why it is highly recommended to stay updated regarding the latest information related to it. 

• Overlooking the Benefits of DTAA

DTAA enables TDS payers to claim reduced tax credits or TDS rates on foreign remittances. Being unable to utilise or overlooking the DTAA benefits could end up in you paying higher TDS deductions. 

• Unavailability of Transaction Records

It is essential to have detailed records of foreign transactions, including tax filing, TDS verification, and audit compliance. If these are unavailable, you might face difficulty while claiming tax refunds or face penalties at the time of tax assessments. 

• Missing out on TDS Deposit Deadlines

Missing TDS deposit deadlines can have serious consequences, including interest charges, penalties, and legal complications. 

• Improper Documentation 

When it comes to TDS on foreign remittance, proper documentation is crucial. Failing to have appropriate documentation could result in penalties.

Conclusion

Understanding TDS on foreign remittances is essential for anyone transferring funds abroad, especially to NRIs or foreign entities. Section 195 mandates that TDS must be deducted on taxable payments, with rates varying by the type of remittance and applicable DTAA provisions. 

Proper compliance requires submitting Forms 15CA and 15CB, maintaining accurate documentation, and verifying PAN details where necessary. Exemptions exist for specific education, medical, and senior citizen remittances. 

Moreover, taxpayers can claim refunds through ITR filings with TDS credit. Staying informed ensures legal compliance, avoids penalties, and facilitates the efficient processing of international fund transfers.

Frequently Asked Questions 

1. What is the Current TDS Rate for Foreign Remittances?

According to the latest data of 2024, the TDS on foreign remittance for education expenses with a loan is 0.5%, TDS on medical remittance exceeding ₹7 Lakh is 5%, and for general foreign remittance, loan repayments, and investments without PAN details, the rate is 20%. 

2. How do I Calculate TDS on Foreign Remittances?

To calculate the TDS on foreign remittance, you first need to determine the remittance amount in Indian currency, identify the applicable TDS rate, multiply the amount by the TDS rate, and then deduct the TDS from the total amount.

For example, to send ₹10 Lakh for educational purposes, the applicable TDS rate is currently 5%. Therefore, the TDS amount will be ₹ 50,000 (₹10,00,000 x 5%). Thus, the final remittance amount will be ₹ 9,50,000 (₹10,00,000 - ₹50,000). 

3. What Forms are Required for TDS on Foreign Remittances?

According to Section 195, while remitting a fund to an NRI account, you need to submit Form 15CA. It is a declaration form. Form 15CB, on the other hand, is an event-based form where a CA certifies the details of the remittance amount. 

4. Are there any Exemptions from TDS on Foreign Remittances?

No, according to the latest update on TDS for foreign remittance in 2024, medical treatment expenses exceeding ₹7 Lakh are no longer tax-exempt. This was tax-exempt earlier in 2023. 

5. How is TDS Different from TCS for Foreign Remittances?

TDS (Tax Deducted at Source) refers to tax deducted at source when transferring funds to an NRI account, exceeding a particular threshold. In contrast, TCS (Tax Collected at Source) applies only to the amount that exceeds the threshold, not to the entire transferable amount.

6. What Happens if TDS is not Deducted Properly?

If the TDS amount is not appropriately deducted, the payer will be subject to pay 1% interest per month from the date the TDS amount was supposed to be deducted. 

If it is found that the payer has intentionally failed to pay TDS, under Section 271C, they may face a penalty equal to the TDS they were unable to deposit or deduct.

7. How can I claim credit for TDS Deducted on Foreign Remittances? 

To claim credit for TDS refund, you need to download Form 16A / TDS Certificate, file ITR mentioning the paid TDS amount and claim credit for TDS in the specific section. If applicable, it is also essential to attach the DTAA documents.