The new rates for Tax Collected at Source (TCS) on all international transactions will be applicable from July 1, 2023. The new TCS rules hold importance on three fronts: One, on some international transactions, the TCS rate has been increased substantially; two, the earlier threshold limit has been removed (example, investments in assets) for some transactions; and third, there’s been no change in the rate of TCS or threshold limit in certain transactions. TCS will automatically apply to all international transactions in which an Indian converts Indian Rupees to buy foreign currency, including US dollars, subject to certain conditions.

Money sent abroad for children’s education expenses is not impacted by the new 20% TCS rules, effective July 1. “The finance ministry has however made it clear that this 20% TCS will not be applicable to education and medical costs incurred abroad,” says Amit Singh, Founder of UniCreds, an extended arm of UniScholars.

However, there are two aspects to sending dollars abroad for foreign education: first, whether it is in the form of a loan, and second, if the money is being sent to meet education related (for example, home-cost) expenses of students abroad.

The TCS rate and the threshold limit will apply for education abroad, depending on the nature of the dollar remittance. “Currently, 0.5% TCS is levied on a sum above Rs 7 lakh for overseas education loans. Other education-related transactions over Rs 7 lakh are taxed at 5% TCS. “Consequently, transactions like housing and living costs over Rs 7 lakh are taxed at 5% if they can be subjected to educational expenses,” informs Amit.

“It is important to note that even after the Finance Act of 2023, there have been no modifications to the expenses related to education, and this situation remains unchanged,” adds Amit.

For loans that qualify for the Section 80E tax benefit

  • For loan amounts up to Rs 7 lakh: No TCS
  • For loan amounts exceeding Rs 7 lakh: TCS of 0.5%

For remittances not out of loan (self-funded for education need)

  • For loan amounts up to Rs 7 lakh: TCS of 5%
  • For loan amounts exceeding Rs 7 lakh: TCS of 5%

Although the new 20% TCS rule effective July 31 does not change for money remitted abroad for education, parents and students need to be watchful while taking an education loan for studying abroad. Here’s a tip: “The healthiest course of action now would be to get a loan that covers housing costs,” says Amit.