Planning a Foreign Trip or Sending Money Abroad? Here's How Much TCS You’re Paying
- 14/11/2023
- 5min Read
30sec Snapshot
Discover the essentials of Tax Collected at Source (TCS) for foreign transactions. We discuss how TCS could impact your overseas education, travel, and other international expenses, outlining the key thresholds and rates. Whether you’re spending via loans or self-funding, we clarify when TCS is charged and how you can claim it back on tax returns. This could help us in planning your expenditure ahead .
Introduction
Keep That 7 Lakh Figure in Mind
If you send less than INR 7 lakh abroad in a year, you won’t have to worry about extra tax. This exemption isn’t in the income tax law, but based on press releases and clarifications. you can breathe easily. The tax won’t kick in until you cross that amount. But once you do, tax applies differently over INR 7 lakh in spending.
TCS Rates Based on Purpose of Remittance
1. Educational Payments Financed by a Loan
A concessional TCS rate of 0.5% encourages higher studies financed through loans.
Personal Scenario: Sai’s Study Loan for Her Master’s in the UK
Sai was accepted into a master’s program in the UK, with the total expenses, including tuition and living expenses, amounting to INR 16 lakh. To finance this, Sai’s family took out an education loan. This is how the Tax Collected at Source (TCS) was involved in their situation.
For the first INR 7 lakh, there is no TCS.
The remaining INR 9 lakh attracts a TCS of 0.5% (as applicable on an education loan).
0.5% of INR 9 lakh = INR 4,500
Sai’s family will pay INR 4,500 as TCS, which they can claim as a tax credit when filing income tax returns.
2. Self-Funded Education and Medical Treatment
A TCS of 5% aims to moderate non-loan-funded education and urgent medical expenses.
Personal Scenario: Anil’s Self-Funded MBA in Australia
Anil decides to self-fund his MBA in Australia, costing INR 18 lakh. He uses his savings for this purpose. Here’s how TCS comes into play:
TCS of 5% on the remaining INR 11 lakh(as applicable on a self-funded education).5% of INR 11 lakh = INR 55,000
Anil will incur a TCS of INR 55,000, which, like Sai’s case, is creditable against his income tax.
Personal Scenario: Neha’s Medical Treatment in Germany
Neha needs a medical procedure in Germany, which costs INR 13 lakh. Since it’s a health-related expense, the TCS rate after the threshold is the same as for self-funded education.
The next INR6 lakh attracts a TCS of 5%.
So,
5% of INR 6 lakh = INR 30,000
Neha’s family pays INR 30,000 as TCS, which they can offset against their taxes.
Everything Else
| Purpose of Remittance | Up to 7 lakhs | Above7 lakhs | TCS Rate |
| Education (loan financed) | ⨯ | ✔ | 0.5% |
| Education/Medical (non-loan) | ⨯ | ✔ | 5% |
| Other Purposes (Investment, Gifts) | ⨯ | ✔ (Not for online transfers ) | 20% |
| Overseas Tour packages | ✔ | ✔ | 5% (Up to 7 lakhs) 20%(Above 7 lakhs) |
| Travel (without package ) | ⨯ | ✔ | 20 % |
Debit card payments
This is incredibly convenient for short trips or small purchases. However, as mentioned above, if your international spending exceeds INR 7 lakh in a financial year, TCS will come into play. Here’s the catch: When you use your debit card for international purchases, you won’t be charged an extra tax (TCS) until you spend more than ₹7 lakh, Even if this threshold is crossed, there is no financial loss incurred, as individuals can claim credit for this TCS amount when filing their annual income tax returns.
Impact of Changes for Credit Card Payments
Credit Against Tax Liability
Conclusion
Frequently Asked Questions
TCS applies if your total remittance exceeds INR 7 lakh in a year, at 0.5% for education loans and 5% for self-funded education or medical expenses, 20% on travel and other purposes.
