If you have a decent player in your LAN, most of the time you won’t transcode. But, if your local player doesn’t support the video or audio codec of that file, then your player will ask the server to transcode the file. Transcoding on LAN is common for example when your audio is Atmos or TrueHD.
If you disable transcoding (it’s a global configuration), you on your LAN and remote clients will just get a generic error message, and your friends will start texting you saying that they are having problems playing certain titles. Trust me, it only causes headaches.
You have to choose:
Save bandwidth: reduce remote stream and enable transcode as they told you to
Save CPU/GPU Power: don’t touch the remote stream and ask your friends to increase the remote bandwidth on their clients.