TCS is not a tax you lose. It is a tax you prepay. Here is how it works, what Budget 2026 changed, and the hidden tax risk nobody tells you about.
12 min read · April 2026
Updated with Budget 2026 changes
If there is a single number that stops Indian investors from going global, it is 20%. That is the TCS rate on investment remittances above ₹10 lakh per year under LRS. It sounds punitive. It feels like a penalty. And it has successfully deterred millions of investors from diversifying their portfolios globally.
But here is what most people do not understand: TCS is fully refundable. It is an advance payment against your income tax liability, not an additional charge. You get every rupee back.
The real tax risk in global investing is not TCS at all. It is something far more consequential that almost nobody talks about: US estate tax. And unlike TCS, that one does not come back.
20%
TCS ON INVESTMENTS
₹10L
EXEMPT THRESHOLD
40%
US ESTATE TAX RATE
$60K
ESTATE TAX FLOOR
TCS RATES
Current RatesAfter Budget 2026
The first ₹10 lakh of LRS remittances per financial year (across all purposes and all banks combined) is exempt from TCS. Above ₹10 lakh, rates vary by purpose. The investment rate of 20% is unchanged in Budget 2026. Education and medical rates dropped from 5% to 2% effective April 1, 2026.
Purpose
Rate
Threshold
Budget 2026
Investments (equity, bonds, property)
20%
Above ₹10L
No change
Education (self-funded)
2%
Above ₹10L
Reduced from 5%
Education (via approved loan)
0%
Fully exempt
No change
Medical treatment
2%
Above ₹10L
Reduced from 5%
Overseas tour packages
2%
From ₹1
Flat rate, reduced
WORKED EXAMPLE
₹25 LakhInvestment Remittance
Remittance amount₹25,00,000
TCS-exempt portion₹10,00,000
Taxable portion₹15,00,000
TCS collected (20%)₹3,00,000
Total outflow from bank₹28,00,000
Amount invested in USD$26,882 (at ₹93)
At ITR filing₹3L adjusts against tax liability
Net cost of TCS₹0 (fully recovered)
In no scenario do you lose the TCS amount. It either reduces your tax payment or comes back as a refund.
REGULATORY HISTORY
TCS Evolution2020 to 2026
2020
TCS introduced on LRS. 5% above ₹7 lakh for all purposes.
Oct 2023
TCS hiked to 20% for non-education/medical remittances above ₹7 lakh.
Budget 2025
Threshold raised from ₹7 lakh to ₹10 lakh. Education loans fully exempt.
Budget 2026
Education and medical TCS reduced from 5% to 2%. Tour packages unified at 2%. Investment rate unchanged at 20%.
"The 20% TCS scares investors away from global markets. The 40% US estate tax should scare them far more. One is refundable. The other is not."
THE REAL RISK
TCS vs US Estate TaxKnow the Difference
TCS is a temporary cash flow event. US estate tax is a permanent wealth transfer to the IRS. For Indian investors holding more than $60,000 in US-situs assets (US stocks, US-listed ETFs), estate tax of up to 40% applies on death. On $300,000 in US stocks, your heirs could owe approximately $96,000. This is not refundable.
Metric
TCS (Refundable)
US Estate Tax (Permanent)
What it is
Advance tax payment collected at remittance
Tax on worldwide US-situs assets at death
Rate
20% (above ₹10L)
Up to 40% (above $60K)
Refundable?
Yes, fully adjustable against income tax
No. Permanent. Paid by your heirs.
Applies to
The remittance amount
All US stocks, US ETFs, US property you hold
How to avoid
Stay below ₹10L or claim back at ITR
Use UCITS ETFs (Ireland-domiciled) or IFSCA custody
CAPITAL GAINS
Tax on ReturnsWhen You Sell
Type
Rate
Note
Short-term (held < 24 months)
Your income tax slab rate
Same as any other short-term capital asset.
Long-term (held ≥ 24 months)
12.5% flat
No indexation benefit. Applies uniformly to all foreign assets.
Dividends from foreign stocks
Slab rate (added to total income)
US withholds 25% under DTAA. Claim FTC via Form 67.
Schedule FA disclosure
Mandatory
Every foreign asset reported regardless of income. Penalties up to ₹10L/year.
PROTECTION STRATEGIES
How to ProtectYour Global Portfolio
Use UCITS ETFs (Ireland-domiciled)
ESTATE TAX
Track the same indices as US ETFs (S&P 500, Nasdaq 100) but are not classified as US-situs assets. Zero US estate tax exposure. Lower dividend withholding at fund level (15% vs 25%).
Invest through IFSCA broker-dealer
CUSTODY
Valura's IFSCA-regulated custody structure provides a layer between your holdings and direct US-situs classification. Indian regulatory recourse. Indian dispute resolution.
Claim Foreign Tax Credit via Form 67
DIVIDENDS
US withholding on dividends (25%) is claimable as a credit against your Indian tax liability. File Form 67 before or along with your ITR. Do not let this go unclaimed.
Track TCS in Form 26AS
TCS RECOVERY
Every TCS deduction appears in your Form 26AS. Cross-check against bank remittance confirmations. Claim as advance tax paid when filing ITR.
FREQUENTLY ASKED
TCS & TaxQuestions
Is TCS an additional tax on my investment?
No. TCS is an advance payment against your income tax liability. It reduces your tax payable or is refunded if it exceeds your liability. You recover every rupee.
What if my total tax liability is less than the TCS collected?
You get the excess refunded. For example, if TCS collected is ₹3 lakh but your total tax due is ₹2 lakh, ₹1 lakh is refunded to your bank account after ITR processing.
Does TCS apply to GIFT City investments?
Yes. GIFT City is treated as foreign territory under FEMA. LRS remittance to GIFT City attracts the same TCS as any other overseas remittance.
What is US estate tax and why should I care?
Non-US residents holding US-situs assets (US stocks, US-listed ETFs) above $60,000 at time of death face estate tax of up to 40%. On $300,000 in US stocks, your heirs could owe ~$96,000 to the IRS. This is not refundable.
How do UCITS ETFs help with estate tax?
UCITS ETFs domiciled in Ireland (e.g., CSPX for S&P 500, CNDX for Nasdaq 100) track the same indices as US ETFs but are not classified as US-situs assets. Zero estate tax exposure for non-US holders.
Tax-smart global investing
TCS is temporary. Your global portfolio is permanent.
Valura is an IFSCA-registered broker-dealer with India-ready tax reports designed for Schedule FA, capital gains, TCS tracking, and Form 67 FTC claims.
Disclaimer: This content is for informational purposes only and should not be construed as financial, legal, or tax advice. Tax laws are subject to amendments. TCS rates and thresholds mentioned are current as of April 2026 post-Budget. US estate tax rules apply under current US-India treaty provisions. Consult qualified tax advisors for advice specific to your situation. Valura is an IFSCA-registered broker-dealer.
