The budget has given a significant benefit to families who wish to send their children abroad for education by removing the tax collected at source (TCS) on remittances of up to `10 lakh.
However, it will only be applicable to remittances made by taking loans. Earlier, a TCS of 0.5% was applicable for amounts of over `7 lakh. If the foreign education is being funded by the family of the person from its own resources, the TCS will continue to be 5%.
The TCS will be levied on the amount over the threshold limit. For example, if you are sending `10 lakh earlier through the liberalised remittance scheme (IRS) route, the TCS was applicable on `3 lakh. Now, if the transferred amount is `12 lakh, it will be applicable on the additional `2 lakh. Currently, remittances through the LRS route are capped at $250,000 per person in a year.
Parizad Sirwalla, partner and head, global mobility services, tax, KPMG in India, said: “Individual taxpayers making foreign remittances, including for education purposes, receive a cash-flow boost through rationalised TCS provisions.”
Manoj Purohit, partner, FS tax, tax and regulatory services, BDO India, said: “Rationalisation of the levy of TCS on LRS will increase the base for exemption and increase compliance. Also, exempting the TCS on payments made for education purposes via specified financial institutions will ease the burden on students planning to study abroad with a minimal tax compliance processes.”
However, Moin Ladha, partner, Khaitan & Co, believes that the increase in the limit wouldn’t really have the desired effect, given that in the context of the total LRS limit of $250,000, this increase is less than 1.5%.
TCS is collected on money transfers made by Indian citizens abroad. While one can claim it back when filing returns, the locking-in of the amount for the interim makes it unattractive.
It was introduced for the first time in Budget 2020-21 and used by the government to catalogue remittances and matching returns.
The tax is collected seamlessly as the bank will collect TCS on foreign education fees and other purposes. The TCS amount gets debited from the sender’s account at the applicable rate when transferring the money abroad. The bank issues a statement under Section 27D with details of the remittances and TCS.
Besides this move, the Budget also proposes additional measures like removing TCS on the sale of goods in which both TCS and TDS (tax deductible at source) were being levied. “To prevent such compliance difficulties, I propose to omit the TCS. I also propose that the provisions of the higher TDS deduction will now apply only in non-PAN cases,” finance minister Nirmala Sitharaman said.
Further, the FM also proposed to decriminalise delay in payment of TCS like it had been done for TDS payments in July 2024.