Published 9 May 2026
Reserve Bank of India Liberalised Remittance Scheme of 2004 (as amended) -- the United States Dollar two hundred fifty thousand per financial year ceiling for Resident individuals; section 206C(1G) of the Income-tax Act, 1961 Tax Collected at Source on outward remittance for education, medical treatment, investment, and gifts; the rate-and-threshold structure post 1 October 2023; Form 15CA simplified compliance for Liberalised Remittance Scheme outflows; the Annual Information Statement category 4.44 cross-check
Taxpayer Brief
Sending money abroad to a son or daughter studying in the United States, Canada, or the United Kingdom is no longer just a banking transaction. It involves the Reserve Bank of India's Liberalised Remittance Scheme cap, the income-tax Tax Collected at Source under sub-section (1G) of section 206C of the Income-tax Act, 1961, the Form 15CA portal compliance, and -- after the recommended Tax Year 2026-27 cycle -- the Annual Information Statement category 4.44 cross-tally. Get the planning right and the maximum permitted remittance flows smoothly with optimal Tax Collected at Source. Get it wrong and the bank holds the wire, the Tax Collected at Source bites at the higher 20% rate, and the Annual Information Statement reflects an outsized lifestyle-spend pattern that can prompt source-of-funds enquiry from the assessing officer.
1. The Liberalised Remittance Scheme Architecture
The Reserve Bank of India introduced the Liberalised Remittance Scheme in February 2004 to allow Resident individuals to remit a specified amount abroad without specific Reserve Bank of India approval. The scheme has been expanded over the years and the current ceiling is United States Dollar two hundred fifty thousand per financial year (1 April to 31 March) per individual. The remittance can be for capital-account purposes (purchase of property abroad, foreign investment) or current-account purposes (education, medical treatment, employment travel, gift, donation, maintenance of close relative, etc.).
Parameter | Position |
|---|---|
Annual ceiling per individual | United States Dollar two hundred fifty thousand per financial year |
Eligibility | Resident individuals (Indian citizen and Persons of Indian Origin treated as Resident for Foreign Exchange Management Act purposes) |
Aggregate calculation | All Liberalised Remittance Scheme outflows of the same individual across all banks aggregate within the cap |
Permissible purposes | Education, medical treatment, employment, emigration, maintenance of close relative, gift / donation, investment in foreign equity / debt / property, foreign tour |
Prohibited purposes | Margin trading, lottery / gambling, purchase of foreign-currency notes for purposes other than personal use, remittance to specified countries (Pakistan, Bhutan, Nepal -- with separate Reserve Bank of India regimes) |
Currency | Any freely convertible foreign currency |
Reporting form | Form A2 to Authorised Dealer bank; Form 15CA to income-tax department; passport copy; purpose declaration |
Cumulative or one-shot | Can be split into multiple remittances within the financial year |
2. Section 206C(1G) Tax Collected at Source -- The Rate Structure
Sub-section (1G) of section 206C of the Income-tax Act, 1961, inserted by the Finance Act, 2020, amended by the Finance Act, 2023 with effect from 1 October 2023 and again by the Finance Act, 2025 with effect from 1 April 2025, requires the Authorised Dealer bank to collect tax at source on every Liberalised Remittance Scheme outflow above the prescribed threshold, at the rate prescribed for the purpose.
Purpose of Remittance | Threshold (per Financial Year) | Rate from 1 April 2025 (Financial Year 2025-26) | Rate from 1 April 2026 (Tax Year 2026-27, section 394 of the Income-tax Act, 2025) |
|---|---|---|---|
Education -- remittance out of an education loan from a financial institution as defined in section 80E | Not applicable | Nil | Nil |
Education -- other (self-funded by parent / student) | ₹10 lakh (aggregate of all Liberalised Remittance Scheme remittances by the remitter in the year) | 5% of the amount above ₹10 lakh | 2% of the amount above ₹10 lakh |
Medical treatment | ₹10 lakh (aggregate, as above) | 5% of the amount above ₹10 lakh | 2% of the amount above ₹10 lakh |
Overseas tour package (purchased from a tour operator) | No threshold | 5% up to ₹10 lakh; 20% on the excess above ₹10 lakh | 2% |
Any other purpose under Liberalised Remittance Scheme (investment, gift, maintenance of relative, etc.) | ₹10 lakh (aggregate, as above) | 20% of the amount above ₹10 lakh | 20% of the amount above ₹10 lakh |
The October 2023 step-up Pre 1 October 2023, the Tax Collected at Source rate on most Liberalised Remittance Scheme outflows was 5% above ₹7 lakh. The Finance Act, 2023 raised the rate to 20% for non-education / non-medical purposes (including investment, gift, maintenance of close relative). Education and medical purposes stayed at 5%. The Finance Act, 2025 raised the threshold from ₹7 lakh to ₹10 lakh and removed collection on remittances out of education loans from 1 April 2025; from 1 April 2026 the education and medical rate is 2%. The 20% rate is effectively a tax-credit advance -- it is creditable against the assessee's final income-tax liability when the Income Tax Return is filed; it is not a final tax. Many taxpayers do not realise this and treat the 20% as a sunk cost. |
3. The Practical Sub-Scenarios for Sending Money to Children Abroad
Scenario 1 -- University Tuition Fee in the United States
Mr. Suresh sends ₹40 lakh to his daughter's university in California in financial year 2025-26, out of his own funds (no education loan). Taking this as his only Liberalised Remittance Scheme remittance of the year, tax is collected at 5% on the amount above ₹10 lakh: chargeable amount ₹30 lakh; Tax Collected at Source = ₹1,50,000. At the 2% rate that applies from 1 April 2026, the same remittance would attract ₹60,000. Mr. Suresh receives a Tax Collected at Source certificate (Form 27D from the bank) and claims the credit in Schedule TCS of his Income Tax Return for the year.
Scenario 2 -- Same Tuition Through an Education Loan
Same ₹40 lakh tuition, but remitted out of an education loan from a bank that is a financial institution as defined in section 80E. From 1 April 2025 the authorised dealer does not collect tax on such a remittance, so Tax Collected at Source = nil; the position is the same under section 394 from 1 April 2026. Interest on the loan is deductible under section 80E in the old regime.
Scenario 3 -- Maintenance of Daughter's Living Expenses Abroad
Mr. Suresh sends ₹15 lakh during the year for his daughter's maintenance -- 'maintenance of close relative', not education. Taken on its own, tax is collected at 20% on the amount above ₹10 lakh: chargeable amount ₹5 lakh; Tax Collected at Source = ₹1,00,000. The ₹10 lakh threshold is an aggregate of all the remitter's Liberalised Remittance Scheme remittances in the year, so where it has already been used up by an earlier remittance (as in section 4 below), the whole ₹15 lakh attracts 20%. The 20% rate is unchanged from 1 April 2026. Same Form 27D credit in the Income Tax Return.
Scenario 4 -- Foreign Tour for the Family
Mr. Suresh purchases a Europe family tour package from an Indian tour operator for ₹12 lakh in financial year 2025-26. The tour operator collects 5% on the first ₹10 lakh (₹50,000) plus 20% on the excess ₹2 lakh (₹40,000): total Tax Collected at Source = ₹90,000. From 1 April 2026 the rate on overseas tour packages is a flat 2%, which on ₹12 lakh would be ₹24,000. The authorised dealer does not collect again on an amount on which the seller has collected. Mr. Suresh receives Form 27D and claims credit in the Income Tax Return.
4. Aggregate Tax Collected at Source for Mr. Suresh -- Financial Year 2025-26
Assume the tuition (own funds) is remitted first, so it uses up the ₹10 lakh threshold, and the maintenance remittance follows. The tour package is collected on separately by the tour operator.
Purpose | Remittance / Spend | Rate (Financial Year 2025-26) | Tax Collected at Source Amount | Amount at rates from 1 April 2026 |
|---|---|---|---|---|
Tuition (own funds) | ₹40 lakh | 5% above ₹10 lakh | ₹1,50,000 | ₹60,000 |
Daughter's maintenance | ₹15 lakh | 20% (threshold already used) | ₹3,00,000 | ₹3,00,000 |
Family Europe tour | ₹12 lakh | 5% on first ₹10 lakh; 20% above | ₹90,000 | ₹24,000 |
Total | ₹67 lakh | Various | ₹5,40,000 | ₹3,84,000 |
Tax Collected at Source is a prepayment, not a charge Mr. Suresh's ₹5.40 lakh of Tax Collected at Source is creditable against his income-tax liability for the year. If that liability is ₹3 lakh, the credit produces a refund of ₹2.40 lakh, with interest under section 244A at one-half per cent for every month or part of a month. This is a cash-flow cost, not a tax cost. |
5. The Liberalised Remittance Scheme Cap Discipline
Mr. Suresh's aggregate ₹67 lakh outflow in the year converts to approximately United States Dollar eighty thousand at the prevailing exchange rate -- well within the United States Dollar two hundred fifty thousand annual cap. But a parent funding multiple children, plus paying for an overseas property purchase, plus making foreign investments, can hit the cap. Track the cumulative figure across all banks and all purposes; the cap is per individual, not per remittance or per bank.
6. The Annual Information Statement Cross-Check
Every outward Liberalised Remittance Scheme remittance is reported by the Authorised Dealer bank to the income-tax department under the Specified Financial Transaction return Form 61A. The information appears in the Resident's Annual Information Statement category 4.44 -- 'Outward foreign remittance / purchase of foreign currency'. The assessing officer routinely cross-tallies category 4.44 against the declared income in the Income Tax Return -- a Resident with ₹15 lakh declared income but ₹50 lakh of Liberalised Remittance Scheme outflow will receive a section 142(1) notice asking for source-of-funds. Maintain a contemporaneous source-of-funds working: salary, prior savings, refund proceeds, sale-of-asset proceeds, family-funds-routed-through-account.
7. Form 15CA for the Liberalised Remittance Scheme Outflow
For Liberalised Remittance Scheme outflows by individuals for personal purposes (education, medical, maintenance of relative, gift), Form 15CA is typically Part D -- self-declaration that the remittance is not chargeable to tax in India in the hands of the recipient. No Form 15CB by Chartered Accountant is required because the outflow is from the Resident's already-taxed funds, not Indian-source income flowing to a Non-Resident in the section 195 sense. The Authorised Dealer bank typically provides a streamlined Form 15CA template for Liberalised Remittance Scheme transactions.
8. Practical Checklist for Parents
- Plan the year's Liberalised Remittance Scheme outflow at the start of the financial year -- map the United States Dollar two hundred fifty thousand cap against expected requirements.
- Where multiple children are abroad, track aggregate per parent (each parent has independent United States Dollar two hundred fifty thousand).
- Education-loan remittances from a financial institution attract no Tax Collected at Source, against 5% (2% from 1 April 2026) or 20% otherwise; interest on such a loan is deductible under section 80E in the old regime.
- Maintain Form 27D Tax Collected at Source certificates from all Authorised Dealers and tour operators.
- Claim Tax Collected at Source credit in Schedule TCS of the Income Tax Return.
- Document source of funds -- salary slips, fixed deposit maturity, mutual fund redemption, prior savings -- for any Liberalised Remittance Scheme outflow exceeding 50% of declared income.
- Coordinate Form 15CA filing with the bank's standard Liberalised Remittance Scheme procedure -- bank typically files on the parent's behalf with parent's e-filing portal credentials.
BharatTax NRI Compliance Tool Is your Non-Resident status reflected in the income-tax department's Permanent Account Number database, and is your Permanent Account Number-Aadhaar status correctly tagged as exempt? Use the NRI Compliance Tool at itr.bharattax.co to verify, update residential status on the e-filing portal, and pre-validate your Non-Resident External or Non-Resident Ordinary bank account for any refund. |
9. Case Law Reference and Anticipatory Legal Analysis
Case Law Reference: Liberalised Remittance Scheme architecture The Liberalised Remittance Scheme (LRS) under section 5 of the Foreign Exchange Management Act, 1999 enables Resident individuals to remit up to United States Dollar 250,000 per financial year. Section 206C(1G) of the Income-tax Act, 1961, as it stands from 1 April 2025, requires the authorised dealer to collect tax on LRS remittances above ten lakh rupees in a financial year: 5 per cent for education or medical treatment, 20 per cent for other purposes, and nothing where the amount remitted is an education loan from a financial institution defined in section 80E. For tax year 2026-27, section 394 of the Income-tax Act, 2025, as amended by the Finance Act, 2026, keeps the ten lakh threshold and the 20 per cent rate but reduces the education and medical rate to 2 per cent; the education-loan exclusion continues. |
Prospective Interpretation -- The Annual Information Statement category 4.44 cross-check Two unsettled interpretive issues. (i) Treatment of the Annual Information Statement category 4.44 -- the income-tax department routinely cross-tallies category 4.44 against declared income. (ii) The rate matrix has changed twice since October 2023 -- the Finance Act, 2025 (threshold ₹10 lakh, nil on education loans) and the Finance Act, 2026 (2% for education, medical and tour packages from 1 April 2026). |
10. Key Takeaways
- Reserve Bank of India Liberalised Remittance Scheme allows Resident individuals to remit up to United States Dollar two hundred fifty thousand per financial year for permitted purposes.
- Section 206C(1G) Tax Collected at Source from 1 April 2025 -- nil on education-loan remittances; 5% above ₹10 lakh for other education and medical; 20% above ₹10 lakh for other purposes; 5% up to ₹10 lakh and 20% above on overseas tour packages. From 1 April 2026 (section 394 of the Income-tax Act, 2025) the education and medical rate is 2% and the tour-package rate 2%.
- Tax Collected at Source is a prepayment, creditable in Schedule TCS of the Income Tax Return -- not a final tax.
- Form 15CA Part D for Liberalised Remittance Scheme outflows by individuals; no Form 15CB required.
- Annual Information Statement category 4.44 reports every Liberalised Remittance Scheme outflow -- assessing officer cross-tallies against declared income.
- Multiple children abroad -- map aggregate against United States Dollar two hundred fifty thousand per parent; coordinate with spouse if both parents are Resident.
Disclaimer: This article is for general information only. It does not constitute tax / legal advice. Please consult a qualified Chartered Accountant or tax practitioner for advice specific to your circumstances. The legal position is current as of FA 2024 (No. 2) / FA 2025; subsequent amendments and CBDT notifications may modify the position.