Studying overseas? Astute advice for successfully navigating the 20% TCS - THE OVERSEAS CONSULTANT

Sending money overseas for student maintenance is the main factor to consider when calculating Tax Collected at Source.

Different groups of people in India, each with their own motives for transferring money abroad, have been affected by the recent announcement regarding the increase in the Tax Collected at Source (TCS) to 20% on foreign money transfers.

This is especially true for students who intend to pursue their academic goals overseas. This is a thorough handbook that will help students deal with this tax burden.

Recognizing the 20% TCS for International Remittances

First, let's find out what the 20 percent TCS on foreign payments includes. From October 1, 2023, this tax provision obliges authorized traders, banks and money changers to collect a 20% tax on the amount sent abroad for certain purposes.

For amounts below 700,000 rupees, TCS rates are as follows:

a) Fixed price of 5% when buying travel packages from a foreign country.

b) 0% on all other money transfers.

For amounts above 700,000 rupees, the TCS rates are as follows:

a) 0.5% if the money transfer is intended for educational expenses and is financed by a student loan.

b) 5% of remittances related to education (if the source is personal finances) or medical treatment.

c) Fixed price of 20% when buying program packages for foreign travel.

d) 20% of the amount exceeding 7000000000 for all other purposes.

TCS Calculation on Overseas Education Remittance

If transfer amount is less than 7 lakhs then TCS is not charged in which case TCS charge is 0% and TCS liability is not applicable. If the remittance exceeds 7 lakhs (eg 10 lakhs) and the funds are from personal sources, the TCS rate is 5%. This applies only to balances above Rs 7000. So the amount payable by TCS would be 5% of 3 lakhs or a total of Rs 15,000. In cases where the remittance is 10 lakhs and the source of funding is an education loan, the TCS rate drops significantly to just 0.5% and is applicable only on amounts above 7 lakhs ie. 3 lakhs. So the amount of TCS payable in this scenario would be 0.5% of 3 lakhs or Rs.1500. One concern is sending money abroad to support students. "Maintenance of close relatives" offers 20% TCS if you cross the foreign money threshold of 700,000 rupees in that financial year. But here is one way to navigate.

Navigating the 20% TCS Effectively

When sending money to students who belong to the "family support" category, their parents or guardians only need to provide documents that show that the money transfer is intended for a student studying abroad. If the link can be displayed, this category only offers discounted TCS Foreign Education rates (0.5% / 5%). It is assumed that the amount will be sent abroad to cover the student's living expenses. If the student lives in a university-recognized residence abroad, it is easy to prove that the transfer is for the maintenance of the student, as the transfer is made to the university's bank account. However, if the student has his own residence, additional documents, such as the student's acceptance letter, student visa, etc., may be needed to create the link. This way parents can save money from TCS for maintenance transfers.

International credit card charges are currently not invited by TCS. A student can bring an international credit card from India to cover his overseas expenses. This way no extra TCS fee will be added to their expenses and the savings can be used for educational expenses. Sending money abroad from India requires careful adherence to RBI rules and compliance with TCS regulations. When financing study abroad, parents should know which remittance they are making, its LRS code and how much TCS is applied to the remittance. Once the transaction is completed, related documents like invoice and TCS certificate should be kept safe as they are useful for presenting IT returns. They can facilitate potential tax refunds or deductions. Banks may not always provide sufficient guidance or assistance in these matters. Because of the complexity, it can be beneficial to choose a money transfer company that offers more personal care and guidance. If you plan to finance your education abroad, it's important to keep a close eye on exchange rates. A well-timed trade can lead to significant savings in conversion costs. Using new-age fintech platforms such as ExTravelMoney, Remitly and TransferWise can prove beneficial. They not only facilitate efficient remittance abroad but also provide guidance on TCS compatibility and ensure affordable remittances.

The way forward While the 20% TCS is a financial challenge for students planning to study abroad, proactive financial planning and seeking professional guidance can help mitigate its impact. It is important to remember that pursuing an international education is still possible with careful financial management and researching available resources, such as an education loan that reduces the impact of TCS at affordable interest rates. Students can pursue their dreams of international education without jeopardizing their financial stability.

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