Studying Abroad? Smart tips to navigate the 20% TCS effectively

By George Zachariah

The recent announcement about the hike in the Tax Collected at Source (TCS) to 20% on money transfers abroad has sent ripples across various groups of people in India, each with their unique reasons for sending money abroad.

This is particularly true for students who dream of pursuing their education abroad. Here’s a comprehensive guide on how students can effectively navigate this tax burden.

Understanding the 20% TCS on Foreign Remittances

First and foremost, let’s clarify what the 20% TCS on foreign remittances entails. Effective from October 1, 2023, this tax provision mandates that authorized dealers, banks, and money changers collect a 20% tax on the amount being remitted abroad for specific purposes.

For amounts below the Rs 7 lakh threshold, the TCS rates are as follows:

a) A flat rate of 5% for the purchase of overseas tour packages.
b) 0% for all other purposes of remittance.

For amounts exceeding the Rs 7 lakh threshold, the TCS rates are outlined as follows:

a) 0.5% if the remittance is for educational expenses and is funded by an educational loan.
b) 5% for remittances associated with education (when personal funds are the source) or medical treatment.
c) A flat rate of 20% for the purchase of overseas tour program packages.
d) 20% of the amount above Rs 7 lakhs for all other purposes.

TCS Calculation on Overseas Education Remittance

In the case where the remittance amount stands under Rs 7 lakhs, there will be no TCS imposed, resulting in a 0% TCS rate, and no TCS liability will apply.

When the remittance amount exceeds Rs 7 lakhs, such as Rs 10 lakhs, and the source of funds is from personal sources, the TCS rate is 5%. This is applicable solely to the surplus amount beyond Rs 7 lakhs. Consequently, the TCS amount payable would be 5% of Rs 3 lakhs, totaling Rs 15,000.

In instances where the remittance amount equals Rs 10 lakhs, and the funding source is an education loan, the TCS rate reduces significantly to just 0.5% and is applied solely to the amount exceeding Rs 7 lakhs, i.e., Rs 3 lakhs. Consequently, the TCS amount payable in this scenario would be 0.5% of Rs 3 lakhs, amounting to Rs 1,500.

An area of concern is sending money abroad for student maintenance. “Maintenance of close relatives” invites a TCS of 20% once you’ve crossed Rs 7 lakh threshold on foreign remittances in that financial year. But there is a way to navigate this.

Navigating the 20% TCS Effectively

When sending money to students under the “maintenance of close relative” category, their parents or guardians just need to show documents proving the remittance is for a student studying abroad. If that link can be shown, this category will only invite the concessional TCS rates (0.5% / 5%) of Overseas Education.

Let’s assume the amount is being sent abroad to meet the student’s stay expenses. If the student stays in university-approved accommodation abroad, it’d be easy to prove that the remittance is for student maintenance as the remittance will be made in favour of the university’s bank account.

However, if the student has their own stay arrangement, additional documents like the student’s acceptance letter, their student visa etc may be required to establish the link. This way parents can save money on TCS for maintenance transfers.

Spends on international credit cards currently don’t invite TCS. A student can carry an international credit card from India to meet their expenses abroad. This way their spendings won’t be subject to additional TCS charge and they can use those savings on their study expenses.

Sending money abroad from India requires careful navigation of the RBI regulations and TCS compliance rules. When financing studies overseas, parents should know what is the type of remittance transaction they are doing, its LRS code, and how much TCS is applicable on the remittance.

Once the transaction is done, its related documents like bill and TCS certificate must be stored safely as these will come in handy during filing IT returns. These might facilitate potential tax refunds or deductions. Banks might not always offer sufficient guidance or assistance in these aspects. Given the complexities, it might be beneficial to opt for a money transfer company that offers more personalized care and guidance.

When planning to finance overseas education, it’s vital to monitor the exchange rates closely. A well-timed transaction can result in significant savings on conversion costs. Using new age fintech platforms like ExTravelMoney, Remitly, and TransferWise can prove beneficial. Not only do they facilitate efficient money transfers abroad, but they also offer guidance on TCS compliance and ensure low cost remittances.

The Way Forward

While the 20% TCS poses a financial challenge for students planning to study abroad, proactive financial planning and seeking professional guidance can help mitigate its impact. It’s crucial to remember that pursuing international education is still possible with careful management of finances and exploring available resources like an education loan which will reduce the TCS impact with concessional rates. Students can continue to pursue their dreams of international education without compromising their financial stability.

(Author is CEO, ExTravelMoney)