The Great Indian Remittance Shift: Why Education Financing Defied the TCS Crunch in July 2025

The financial landscape of India's cross-border transactions is undergoing a profound transformation. Recently, the Reserve Bank of India (RBI) revealed a compelling paradox on the Liberalised Remittance Scheme (LRS) for July 2025. While overall outward remittances declined by 11% year-over-year (YoY), education-related flows experienced the sharpest month-over-month (MoM) rebound. This split narrative highlights the immediate, restrictive impact of revised tax policies on discretionary spending, such as leisure travel, in contrast to the undeniable, inelastic demand for global education.

This in-depth analysis breaks down the July 2025 LRS data, which examines the critical role of the Tax Collected at Source (TCS) policy, and projects the long-term trends shaping the future of Indian wealth deployment overseas.

The July 2025 Remittance Overview: A Headline Decline

In July 2025, total outward remittances under the RBI's LRS stood at approximately USD 2.45 billion, down significantly from the USD 2.75 billion recorded in July 2024, an 11% YoY contraction. This decline follows a period of unprecedented surge in LRS flows over the preceding years, making the sharp contraction notable.

This overall dip was primarily attributed to three key factors, as highlighted by the 1Lattice analysis:

1. Impact of Higher Tax Collected at Source (TCS)

The revised TCS regime, effective from April 1, 2025, significantly increased the upfront cost for non-exempt categories.

2. Muted Overseas Spending on Travel

International travel, the largest component of LRS, witnessed a notable decline as the new, higher TCS rates deterred non-essential, large-ticket leisure expenses.

3. Lower Deposits

A cautious sentiment among remitters, likely due to economic uncertainty and the immediate liquidity impact of TCS, led to lower transfers into foreign deposit accounts.

A Closer Look at the LRS Segments (July 2025)

The LRS data is segmented into various purposes, but the July 2025 report revealed a crucial divergence between the two largest segments, i.e Travel and Education.

The Regulatory Whiplash: TCS and the Liquidity Crunch

The primary reason for the overall decline in LRS flows has been the overhaul of the Tax Collected at Source (TCS) provisions under the Income Tax Act. The Union Budget 2025 introduced changes designed to streamline the process, but resulted in an immediate liquidity challenge for high-value remittances.

The New TCS Regime (Effective April 1, 2025)

The TCS is applied only on the amount exceeding the specified threshold (Lakh in most cases) under the Liberalised Remittance Scheme (LRS).

Every taxpayer needs to understand the new rules to mitigate impacts on their finances. With this knowledge, they can implement strategies to minimise tax payments. This will allow taxpayers to legally optimise their foreign remittances by utilising exemptions and correctly declaring the transfer's purpose.

Strategies to Minimise Upfront TCS Deduction (Effective from April 1, 2025)

1. Utilise the Exemptions and Lower Rate Categories

• Fund Education with a Loan: Take an education loan from a specified financial institution to ensure 0% TCS on the entire amount.
• Specify Purpose: Always ensure your bank/authorised dealer clearly codes your remittance as 'Education' or 'Medical Treatment' to benefit from the higher INR 10 lakh threshold and the lower 5% TCS rate above that limit, instead of the 20% rate.

2. Manage Remittance Timing and Amount

• Stay Below the Threshold: For purposes other than overseas tour packages, try to keep your aggregate remittances for the financial year (April to March) below the INR 10 lakh threshold to avoid TCS entirely.
• Split Across Financial Years: If you need to remit a large amount (e.g., ₹15 lakhs for investment), consider splitting the transaction: send INR 10 lakh in the current financial year and the remaining INR 5 lakh in the next financial year (starting April 1st). This ensures no TCS is deducted on either part.
• Utilise Multiple PANs (Family): If the funds are for a family expense, and multiple family members (with different PANs) are resident individuals, you may be able to split the remittance across their accounts, utilising each person's INR 10 lakh threshold. Consult a tax advisor for the proper legal structure of such transactions.

3. Avoid the Higher-TCS Categories

• Book Tour Components Separately: The 20% TCS rate applies to the amount above the lower threshold of INR 10 lakh for 'Overseas Tour Program Packages'. To avoid this classification, consider booking your flight tickets, hotel, and other travel components separately instead of purchasing an all-inclusive 'package.'

4. Use Alternative Methods (If Applicable)

• Non-Resident Indian (NRI) Accounts: TCS rules generally apply to remittances made by Resident Individuals under the LRS. Transfers from NRO to NRE accounts, or repatriation from an NRE account, are not subject to TCS. If you are an NRI, utilise your NRI accounts.
• International Credit Card Spending: As of now, international credit card spending is exempt from TCS. Using a credit card for your foreign expenses is a way to avoid the upfront TCS deduction.

Reclaiming TCS as a Credit or Refund

Since TCS is not a final tax, the primary way to save it is to get it back when you file your Income Tax Return (ITR).

1. Claim Tax Credit

The amount of TCS collected is treated as an advance tax payment on your behalf.

• When you file your ITR, you can adjust the full TCS amount against your final income tax liability.

2. Claim a Refund

• While filing your return, ensure you correctly report the TCS amount under the designated section to claim the credit/refund.

Necessary Steps for Claiming

• Check Form 26AS/AIS: Ensure the TCS deducted by your bank/Authorised Dealer is correctly reflected in your Form 26AS (Tax Credit Statement) and/or Annual Information Statement (AIS) available on the Income Tax e-filing portal.
• Obtain Form 27D: Your bank/Authorised Dealer should provide a Form 27D (TCS Certificate) as proof that the tax was collected and deposited.

Conclusive Summary and Outlook

The RBI LRS data for July 2025 paints a clear picture of an Indian remitting population segmenting its financial outflows based on necessity and tax policy. The overall 11% YoY decline in outward remittances is a direct consequence of the higher Tax Collected at Source (TCS) rates on discretionary spending, particularly travel and certain forms of investment, which created a widespread liquidity crunch for remitters.

However, the sharp month-on-month rebound in education-related flows is the true headline. It demonstrates the inelastic, mission-critical demand for global education among Indian students and, critically, confirms the effectiveness of the government's targeted TCS exemption for loan-funded education.

Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement.