The Union Budget 2023-2024, presented by the Minister of Finance of India, was released as recently as February 01, 2023. One of the most important proposals made was in relation to the TCS on Foreign Remittance for Education Section. For students who are planning to study abroad, TCS on foreign remittance for education section holds great value, for the latest updates of economical value help determine their preparatory plans for the future. This blog aims to help you understand the most relevant developments of TCS on foreign remittance for education section, an understanding of which shall help you make sense of things. Review your study abroad options, including accommodation and university preferences keeping in mind the TCS on foreign remittance for education section! Read on!
What is Foreign Remittance?
The money that is transferred from a foreign country to one’s own home country, or sending money outside the home country to a different one can be considered foreign remittance. This foreign remittance contributes to the country’s economic growth, where a percentage of money is used for the same. Now, imagine cases where parents need to send money to their children studying abroad, or need to transfer money to their family members in need who are in another country. This would be the transfer of money that shall come under the strata of Liberalised Remittance Scheme (LRS) by the Reserve Bank of India (RBI). It would be considered to stay under the ambit of foreign remittance. Moreover, the same shall be subject to tax. It is to be noted that based on the process of transaction, remittance is divided into inward remittance and outward remittance.
To make things easier, let’s consider the below examples.
- Inward remittance: Family in India receiving money from NRIs abroad.
- Outward remittance: Parents sending money to their children abroad.
Foreign Remittance Under the Liberalised Remittance Scheme (LRS)
Now that we have understood what foreign remittance is and what it means in terms of inward and outward remittance, let’s understand what it means under the Liberalised Remittance Scheme (LRS).
To start things with, let’s note that the Reserve Bank of India (RBI) permits Indian residents to remit a definite amount of money to be sent abroad. The arrangement of the same comes under the establishment of Liberalised Remittance Scheme (LRS). When this money is sent abroad, it can be for various purposes, such as investment, medical treatment, donations, education, etc.
The only prohibited act under the same is buying and selling of foreign goods under Schedule II of Foreign Exchange Management Rules, 2000.
Therefore, it can be said that Foreign remittance Under the Liberalised Remittance Scheme (LRS) includes the following:
- Education out of India
- Medical treatment
- Family maintenance
- Foreign investments
What is TCS on Foreign Remittance for Education Section?
A tax collected at source (TCS) is levied on foreign remittances that are made under Liberalised Remittance Scheme (LRS), as of October 1, 2020. When TCS on foreign remittance is levied, it is done beyond a standardised threshold. It differs per different purposes, but focusing on the education section, can be explained through two pointers.
- A TCS of 0.5% is applied for any kind of foreign studies remittances that are made via an education loan and exceed the limit of INR 7 lakh.
- A TCS of 5% is applied for foreign studies remittances that are not made via an education loan and exceed the amount of INR 7 lakh.
As per the latest changes, there have been certain things to look out for in the case of TCS on foreign remittance in the education section. The same is elaborated on in the next section.
Also Read: How to Transfer Money to a Foreign University?
TCS on Foreign Remittance for Education Section: Present vs Future
As mentioned above, the present rate of TCS on foreign remittance for education purposes, via education loans is 0.5%, for an amount increasing INR 7 lakh. But for the purpose of education, other than via education loans, it is at 5%. The table below presents the same to better the understanding.
|For Education Loan||0.5%|
|For Education purposes, except for education loan||5%|
However, there is one uncertainty in the case of foreign education purposes, in terms of living expenses. It is that there is a possibility of TCS on remittances for living expenses of students studying abroad to be increased to 20%.
In simpler terms, note the below.
- If the parent, who is planning to send money abroad for education purposes is able to establish the link between the transfer for living expenses with educational purposes, then the TCS on foreign remittance in the education section will be 5% only.
- On the other hand, if the parent fails to establish the fact that the remittance for living expenses is for education purposes, then the TCS can stand at 20%.
The latter is something to look out for, for it is difficult to create a link between funds sent abroad with living expenses that are connected to private accommodation, like private apartments etc. This is because it can easily be for non-education purposes. Therefore off-campus accommodation expenses become riskier to fund from the home country, than on-campus accommodation, like hostel fees. To avoid the same, it is hence advisable for students planning to study abroad to opt for university accommodation.
The current TCS on foreign remittance for education, via an education loan, stands at 0.5% for an amount increasing INR 7 lakh. Without education loan for educational purposes, it is at 5%.
Section 206(1G) is TCS on outward remittance under LRS.
Yes, TCS is applicable on education fees.
That was all about the latest TCS on Foreign Remittance in Education Section! Continue reading Fly Finance for everything related to study abroad finances!