The recent Budget 2023 announcement has brought about changes in the Tax Collection at Source (TCS) rate for certain transactions in foreign remittances made under the Liberalised Remittance Scheme (LRS). Previously set at 5 percent, the TCS rate has now been increased to 20 percent. TCS refers to the additional tax amount collected by sellers of designated goods from buyers during sale transactions, separate from the sale price. This tax is then deposited into the government account. The revised TCS rates will come into effect from July 1, 2023. The higher rate, however, will not be applicable to expenses related to education and medical purposes.
Now, let's explore how these changes in the TCS rule may affect students who are currently pursuing or planning to pursue education in foreign universities and schools.
How does TCS apply to educational expenses?
According to a report by ET Wealth, for educational purposes, foreign remittances below Rs 7 lakh under the LRS will not be subject to TCS. However, remittances made for overseas education through an education loan paid abroad will incur a TCS of 0.5 percent beyond the threshold limit of Rs 7 lakh. In the case of money remitted abroad for education purposes, not funded by an education loan, a TCS of 7 percent will apply if the amount exceeds Rs 7 lakh in a financial year.
Is a 20 percent TCS applicable to additional living expenses for students studying abroad?
If the annual remittance amount surpasses the threshold, they will automatically incur a lower TCS rate of 5 percent.
Nevertheless, parents frequently send money to support their children with living expenses and other additional costs. The concern is whether these remittances will be classified as miscellaneous expenses and subject to a high TCS rate of 20 percent. To address this confusion, the Ministry of Finance clarified in its FAQs that remittances for travel and incidental expenses linked to education will be subject to the same TCS rates as those applicable to remittances for educational purposes.
How to send a higher amount without incurring a 20 percent TCS charge?
In the case of overseas education, TCS will be applicable if the remittance exceeds Rs 7 lakh per financial year for an individual. To avoid this, if a student requires an amount higher than the threshold, parents can divide the payments and transfer the funds through immediate family members like the father, mother, or siblings. This way, each transfer will stay below Rs 7 lakh, enabling the student's expenses for studying abroad to be covered, according to experts.
What should be kept in mind when sending money abroad for educational purposes?
It is crucial to ensure proper documentation to verify that the funds being sent by parents are intended for educational purposes. When filling out the LRS remittance form, remember to mention the purpose of the remittance specifically for education.
What are the implications of TCS on forex cards?
When using a forex card, which is commonly offered by loan providers to cover living expenses overseas, a substantial TCS of 20 percent will be applied. Unlike debit or credit cards, there is presently no threshold of Rs 7 lakh for expenditures made through forex cards. Therefore, any amount spent using a forex card will attract a 20 percent TCS.
What is the process for obtaining a refund of TCS funds?
It is important to note that TCS is not a separate tax entity. Instead, it is reflected as a tax credit in Form 26AS, which can be utilised to offset tax liabilities when filing an income tax return (ITR) or making advance tax payments. If individuals are unable to offset the TCS amount against their tax liabilities or other forms, they can claim a refund by including it in their ITR filing.
