What is held at the door

The money held at the door is collected at source before any rupee leaves the country. This page explains the shape of that collection: nothing is collected up to a yearly threshold, a fixed share of everything above it is, and the share of the whole year's remittance that is held back rises as the amount rises.

Nothing, and then a fifth of the rest

What is collected before the money leaves, and what arrives on the other side.

Read at: 12.11.2026 14:25

The rule in one sentence

Nothing is collected on the part of a year's remittances that falls under the threshold, and a fixed share is collected on everything above it. The threshold is set once a year and does not move, so the share of the whole year's remittance that is held back rises as the amount rises.

That share never reaches the headline rate, because the threshold always shelters the first part of the year's total. A reader who sends a large amount will see a larger share held back than a reader who sends a small amount, but neither will lose the full rate on the whole sum.

What leaves, and what is kept back

The table above shows the year's total remittance in rupees and dollars, the amount collected at source, and the amount that actually reaches the account abroad. One column is what is collected; another is what is left to invest.

The columns are recalculated at every reading from a live rate taken from two independent sources. The figures are not updated when the two sources disagree by more than a small margin, so a reader can see when the rate is uncertain.

Why the share held back rises

The threshold is a fixed amount, so a small remittance may fall under it entirely and nothing is collected. A larger remittance crosses the threshold, and the fixed share applies to the part above it. The part above the threshold grows faster than the whole, so the share held back rises.

A reader who sends twice the threshold does not pay the fixed share on the whole sum; the first part is still sheltered. But the amount held back is larger, and the share of the whole year's remittance that is frozen is larger too.

What the collection is not

The collection is not a fee for the transfer, and it is not a charge by the bank. It is collected by the bank on behalf of the government, and it is credited against income tax when the return is filed. A reader who files a return can claim it back.

But the credit is not immediate, and the money is not available for investment in the meantime. A reader who plans a purchase should treat the collected amount as unavailable until the return is filed and the refund is processed.

Who the collection falls on

The collection falls on the person who sends the money, not on the recipient abroad. A reader who sends money from a joint account should know that the threshold is per individual, not per account, and the bank will ask whose remittance it is.

The collection is the same whether the money buys a share, a fund, or a balance in a foreign account. The purpose of the remittance does not change the arithmetic, and the threshold does not reset for a different purpose.

What a reader should have in hand

Before sending money, a reader should know the year's total remittances so far, because the threshold is cumulative and the collection is calculated on the whole year. A reader who has sent nothing else can read the first row of the table as the cost of that one transfer.

A reader who has sent earlier money must add it, and the table's shape makes that addition impossible to forget. The bank will ask for the purpose of the remittance, and the answer does not change the collection.

The bank collects before the money moves

The collection happens at the bank's counter, not at the tax office. When a resident instructs a bank to send money abroad, the bank is the one that must deduct the tax at source before the remittance is executed. The resident never holds the full amount overseas even for a moment; the deduction is made in rupees on the Indian side of the transaction. What leaves the country is the amount after the deduction.

Because the bank acts as the collecting agent, its own systems decide when the threshold has been crossed. The bank sees all remittances made through it in a financial year, but it does not automatically see remittances made through another bank. A resident who uses more than one bank for outward remittances can cross the yearly threshold without either bank knowing the full picture. The obligation to track the cumulative total then rests with the resident, not with any single bank.

The point of collection also affects the timing of the credit. The deduction is made at the moment of remittance, but the credit for it is available only when the income tax return for that financial year is filed. The gap between deduction and credit is not a fixed number of days; it depends on when in the year the remittance is made and when the return is filed. A remittance made in April waits longer for the credit than one made in March.

The collected amount is not an investment cost

When a resident buys a foreign share, the money deducted at source is often counted as part of the cost of buying that share. That is a mistake. The deduction is not paid to the foreign broker, nor to the foreign exchange, nor to any custodian. It is paid to the Indian government and held there. The share itself costs only the amount that actually leaves India. The deducted amount is a separate claim against the government, not a cost of the investment.

Treating the deduction as a cost leads to wrong comparisons. A resident who compares the price of a US share in dollars, converted at the bank's rate, with the price of a similar Indian share will add the deducted amount to the foreign price. That makes the foreign share look more expensive than it is. The correct comparison is between the amount that leaves India and the Indian share's price, while remembering that the deducted amount still belongs to the resident and will come back.

The deduction is also not a fee for the privilege of investing abroad. The scheme that allows residents to send money abroad does not charge a fee for the permission itself. The deduction is a tax collected at source on the remittance, and it is credited against the resident's total tax liability for the year. If the resident has no tax liability, the amount is refunded. It is the resident's own money, temporarily held by the government.

The threshold is not adjusted for inflation

The yearly threshold below which no tax is collected at source has remained unchanged since the provision was introduced. Prices in India have risen every year since then, but the threshold has not. This means that the same real amount of foreign exchange costs more in collected tax as time passes. A remittance that was below the threshold in the first year of the rule may now be above it, not because the resident is sending more in real terms, but because the rupee value of the same foreign currency has risen.

The effect is not limited to the threshold itself. Because the tax is collected on the amount above the threshold, the share of any given remittance that is collected rises with the exchange rate. A resident who sends a fixed amount in dollars every year will see the rupee value of that remittance rise as the rupee weakens. If the rupee value crosses the threshold, the tax collection begins. If it is already above the threshold, the collected amount rises in proportion to the rupee value.

The absence of indexation also changes the distribution of the burden. Residents who send small amounts, well below the threshold, are unaffected. Residents who send amounts just above the threshold see the collected amount grow faster than their remittance in real terms. The threshold stays where it is while the value of the rupee falls, so the line between no collection and collection moves closer to zero in real terms every year. The rule as enacted has no mechanism to prevent this drift.

The credit can be split across years

The tax collected at source on a remittance is credited against the resident's income tax liability for the financial year in which the remittance is made. But the credit is not always used in full in that year. If the resident's tax liability is smaller than the collected amount, the excess credit is not automatically refunded. It is carried forward to the next year, and to subsequent years, until it is fully set off. The resident does not get the money back as cash unless there is no liability for several years.

This carry-forward provision changes the real cost of the wait. A resident who has a large collected amount and a small tax liability will not receive the full credit when the return is filed. Instead, the credit sits in the tax account, reducing future liabilities year after year. The time value of the money is lost not just for the months until the first return, but for as many years as it takes to absorb the credit. The rule does not pay interest on the carried-forward amount.

The split can also occur within a single year if the resident files the return late. The credit is available from the date the return is filed, not from the date the tax was collected. If the return for the year is filed after the due date, the credit is delayed accordingly. In some cases, the credit may be applied to the next year's liability if the return is filed after the end of the assessment year. The mechanics of the credit are not as simple as a refund cheque.

The bank's margin and the tax collection interact

When a resident sends money abroad, two separate deductions are made from the rupee amount. The first is the tax collected at source, which is a percentage of the amount above the threshold. The second is the bank's margin on the currency conversion, which is the difference between the rate at which the bank buys dollars and the rate at which it sells them to the resident. The two deductions are calculated on different bases: the tax on the rupee amount above the threshold, the margin on the entire rupee amount converted.

Because the margin is applied to the whole amount, including the part that is later collected as tax, the resident pays the margin on money that never leaves the country. The bank converts the full rupee amount into dollars at its selling rate, then the tax is deducted from the rupee amount before the remittance is made. The resident receives less foreign currency than the full conversion would suggest, but the margin has already been earned by the bank on the full amount. This is a hidden interaction that no bank discloses.

The interaction also affects the effective cost of the remittance. The resident's total rupee outlay is the sum of the foreign currency amount at the bank's selling rate and the tax collected at source. But the resident does not get the tax collected back for many months, and the bank's margin is never returned. The two costs compound in the sense that the resident must finance both the foreign investment and the tax deposit from the same rupee resources. The bank's margin is a permanent cost; the tax is a temporary one.