Union Budget 2024: Indian students studying abroad eagerly await the interim Budget 2024-25 to be presented by Finance Minister Nirmala Sitharaman in the Lok Sabha on February 1. Indian parents sending money abroad for their children’s education must follow RBI’s Liberalised Remittance Scheme rules, which limit remittances to USD 250,000 per financial year.
Further, remittances abroad are subject to Tax Collected at Source (TCS) rules. From October 1, 2023, rules require authorized dealers, banks, and money changers to levy a Tax Collected at Source (TCS) on funds transmitted overseas for certain defined purposes including overseas travel, investment, medical needs, and international education.
“A reduction or waiver in Tax Collected at Source (TCS) while remitting money for overseas education and ancillary activities will be a welcome sign. Lowering or waiving off TCS while remitting funds overseas for education will ease the burden on families and encourage more students to explore educational opportunities at a destination of their choice,” says Saurabh Arora, CEO, University Living.
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TCS Calculation on Overseas Education Remittance
If the total remittance for foreign education in one financial year is up to Rs 7 lakh, there is no implication of TCS, whether it is from your sources like a bank account or if you have availed an education loan. In the scenario when the remittance amount is less than Rs 7 lakhs, no TCS will be levied, resulting in a 0% TCS rate and no tax liability.
However, if the amount of remittance exceeds Rs 7 lakh, then the TCS rules differ. The remittances exceeding Rs 7 lakh in a year is subject to TCS at a rate of 0.5% if the education is being funded by a loan from a financial institution (as defined in Section 80E of the Income Tax Act ) and 5% if no loan is being used to support the remittances. The incidence of tax of 0.5% or 5%, will be only on the amount exceeding Rs 7 lakh.
However, there’s a finer point to be noted in TCS. “Maintenance of close relatives” attracts a 20% TCS once your international payments exceed Rs 7 lakh in a fiscal year. When sending money to students in the “maintenance of close relative” category, their parents or guardians only need to provide paperwork demonstrating the remittance is for a student studying abroad. If that link is established, this category will only accept Overseas Education’s concessional TCS rates (0.5% / 5%).
Further, expenditures made on foreign credit cards do not invite TCS now. An Indian student traveling overseas can use an international credit card to cover the costs.
Raghwa Gopal, CEO of MSM Global: a Canada-based education and ed-tech company says, “The Tax Collected at Source (TCS) rate, which affects students studying abroad, is expected to be addressed in the budget. Focusing on lowering TCS rates could help these students who are struggling financially.
The budget may include measures to mitigate the impact of TCS on remittances for education-related expenses. Facilitating options such as zero forex international cards that are exempt from TCS up to Rs. 7 lakhs annually are included in this. The budget could provide direction to parents who are sending money overseas for their kids’ education, emphasizing responsible financial decisions to lessen the effects of TCS on tuition and travel costs.”
The Union Finance Ministry clarified the taxation of international payments made by students using their international debit or credit cards. To provide financial respite to students studying abroad, the ministry announced that payments of up to Rs 7 lakh per financial year would be exempt from the Liberalised Remittance Scheme (LRS) limits.
For loans that qualify for the Section 80E tax benefit
Loan amount up to Rs 7 lakh: No TCS
Loan amount exceeding Rs 7 lakh: TCS of 0.5%
For remittances not out of loan (self-funded)
Loan amount up to Rs 7 lakh: TCS of 5%
Loan amount exceeding Rs 7 lakh: TCS of 5%