Are you worrying about being charged excessive taxes when purchasing foreign currency or a forex card for international travel?
Stay cool! Probably, you will only have to pay a tiny amount as tax. But this is the case only if you have satisfied certain conditions set by the Reserve Bank of India (RBI). So read on to find it out and how much tax you can expect on your next forex purchase or sales.
Also Read: How Much Money Can You Send Abroad from India Without Tax?
Disclaimer: This article on tax regulations related to foreign currency exchange and forex card purchase is for informational purposes only and does not intend to be tax advice. Please consult a financial advisor or a tax professional to get personalised guidance on your specific circumstance.
Taxes Charged for Foreign Currency and Forex Card Purchases
1. TCS (Tax Collected at Source)
Forex transactions, including overseas money transfers, purchase of foreign currency and forex cards, fall under the LRS (Liberalised Remittance Scheme) of the RBI. As a result, these transactions are subject to TCS charges as per the purposes and applicable threshold.
20% TCS is levied for forex transactions above Rs. 10 lakhs in a financial year. However, the RBI offers concessions for crucial purposes such as education and medical treatments. In all cases, transactions below the set limit attract no TCS (except for tourism purposes).
| Type of Forex Transaction | Rate of TCS for up to Rs. 10 Lakhs | Rate of TCS for Above Rs. 10 Lakhs |
| Education Purposes (financed by education loan) | Not Applicable | Not Applicable |
| Education Purposes (financed by other sources) | Not Applicable | 5% of the amount above Rs. 10 lakhs |
| Medical Treatment Abroad | Not Applicable | 5% of the amount above Rs. 10 lakhs |
| Overseas Tour Package | 5% of the total amount | 20% of the total amount |
| All Other Purposes | Not Applicable | 20% of the amount above Rs. 10 lakhs |
For instance, you are a student aspiring to study in the USA, and you have not taken an education loan.
You have paid your university fee of Rs.10,00,000, equivalent US Dollars. Now, when it is time for you to move to the US for university classes, you plan to purchase US Dollar currency for Rs.1,00,000.
Since you have already crossed the threshold of Rs. 10,00,000 in this financial year, you will have to pay TCS for the currency purchase of Rs. 1,00,000. So you must pay 5%, which is Rs. 5000, as TCS.
2. GST (Goods and Services Tax)
Usually, banks and forex vendors charge GST on their service fee. But since Extravelmoney does not charge any service fee, you can save on that.
However, GST charged on the transaction amount is unavoidable, but it is in small amounts. GST is based on the volume transacted, and these volumes are divided into 3 slabs. The calculation of the GST value for each slab is different.
| Slabs | GST Payable | Minimum Tax to be Paid | Maximum Tax to be Paid |
| Slab 1 (Up to Rs. 1 lakh) | 0.18% of the total amount exchanged | Rs. 45 | Rs. 180 |
| Slab 2 (Rs.1 lakh – Rs.10 lakhs) | Rs.180 + 0.09% of the amount above Rs. 1 lakh to Rs. 10 lakhs | Rs. 180 | Rs. 990 |
| Slab 3(Above Rs. 10 lakhs) | Rs. 990 + 0.018% of the amount above Rs. 10 lakhs | Rs. 990 | Rs. 10,800 |
So when considering our earlier instance of travel to the USA, for the currency purchase of Rs. 1,00,000, your GST payable shall be Rs. 180.
Is Selling Foreign Currency Taxable in India?
After returning to India from your international trip, you might want to keep a few currency notes as souvenirs and sell the remaining foreign currency. It’s important to note that forex sales are not subject to TCS, but they are subject to GST. However, the GST rates for selling foreign currency are the same as those for purchasing foreign currency.
How to Show Purchase of Foreign Currency and Forex Cards in ITR?
If you have bought foreign currency or a Forex card, you have to show it in your ITR. But you are not required to enter your TCS details (if applicable) on your own. It is the responsibility of the bank or forex vendor who does the currency exchange to upload TCS information. As these transactions are linked with one’s PAN card, the information gets automatically updated in Form 26AS of the ITR e-filing website.
Therefore, as a taxpayer, you can check whether your TCS details are accurately entered by checking Form 26AS. If you have found any discrepancies, you can report the issue to your bank or forex service provider.
Can You Claim Back Your TCS on Foreign Currency and Forex Card Purchase?
Yes, you can adjust the TCS payment in your ITR (Income Tax Return) filing at the end of a financial year. TCS paid is deducted from your overall Income Tax liability, so you only need to pay the remaining ITR payable amount.
If your ITR is less than the TCS amount paid, the balance amount after the ITR will be refunded to you.
Why is TCS charged if it is to be adjusted/refunded?
The government has observed that many Indian residents have exchanged Indian Rupees for foreign currency and sent money overseas for investments and purchases. However, these incomes are not reported accurately for income tax purposes. To address the issue, this method is implemented to ensure that these individuals file their ITR so they don’t miss the opportunity to claim their refunds.
Therefore, do not consider taxes as a liability but an opportunity to align ITR efficiently with enhanced compliance with the tax regime of the country. While the taxes are minimal for most transactions, knowing the rules around TCS and GST is essential to avoid surprises. At ExTravelMoney, we ensure that your tax obligations are carefully explained and fulfilled and your forex needs are met with the best exchange rates and stress-free transactions.
Visit ExTravelMoney today and make your currency exchange simple, affordable, and stress-free!
Also Read: How To Claim TCS Refund Online When Filing ITR?
Ann Mariya Job is the Associate Content Writer at ExTravelMoney.com. Holding a Bachelor’s in Journalism, she excels in creating deeply researched, engaging, and crisp content. Her work helps readers understand the complexities of foreign exchange, overseas money transfers, and international travel.