Section 206C(1G) of the Income Tax Act, 1961 mandates tax collection at source on specified foreign transactions. It applies when an authorized dealer receives funds for remittance under the Liberalized Remittance Scheme (LRS) or when a seller receives consideration for the sale of an overseas tour program package. The tax must be collected at the time of payment or debit, whichever is earlier.
Applicability of Section 206C(1G)
The provision covers two categories of transactions. The first is the purchase of an overseas tour program package, where TCS is applicable on the entire amount paid by the buyer. The second is any remittance under the Liberalized Remittance Scheme (LRS), which includes remittances for education, medical treatment (where no loan from a financial institution is involved), or for other general purposes such as investments and gifting. The liability to collect tax at source rests with the authorized dealer or the seller of the tour package, as the case may be.
The applicability of this section is transaction-based and not dependent on the total annual remittances across multiple heads. Each remittance is assessed independently for TCS purposes, based on the nature and amount of that specific transaction.
TCS Applicability Table (As of April 2025)
| Collection Codes under section 206C | Nature of Transaction | Threshold Condition | Applicable TCS Rate |
| O | Overseas tour program package | – | 5% up to ₹10 lakh, 20% thereafter |
| Q | LRS – Other purposes (e.g. investments, gifts, foreign property) | ₹10 lakh | 20% |
| T | LRS – Education/Medical (without loan) | ₹10 lakh | 5% |
Important Provisions
- The ₹10 lakh threshold under LRS is applied per financial year per individual. If the total remittance under a single category (e.g., education) crosses ₹10 lakh, TCS becomes applicable on the amount exceeding this limit, as per the prescribed rate.
- In the case of overseas tour program packages, the seller is required to collect TCS even if the total amount is less than ₹10 lakh. The rate changes only once the value exceeds ₹10 lakh.
- Authorized dealers are typically scheduled banks or financial institutions through which LRS remittances are routed. These institutions must collect and deposit TCS as part of regulatory compliance.
- Transactions must be reported in Form 27EQ on a quarterly basis. Failure to collect or deposit TCS on time can result in interest and penalty under Sections 206C(7) and 271CA of the Income Tax Act.
- TCS once collected is not a final tax. It is available as a credit to the buyer/remitter while filing their income tax return and can be adjusted against total tax liability or claimed as a refund.
- The Central Board of Direct Taxes (CBDT) has clarified through circulars that PAN is mandatory for all LRS transactions. Absence of PAN or Aadhaar may attract higher TCS under Section 206CC.
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