Sending money overseas for education - Tips to Reduce TCS burden
Preparing to study in another country is exciting, and there’s a lot to think about – like understanding the Tax Collected at Source, or TCS. It’s the tax you pay when sending money overseas for your education.Preparing to study in another country is exciting, and there’s a lot to think about – like understanding the Tax Collected at Source, or TCS. It’s the tax you pay when sending money overseas for your education.The Tax Collected at Source (TCS) provisions under India’s Liberalised Remittance Scheme (LRS) play a pivotal role for students aspiring to study overseas.
| Nature||Threshold||TCS Rate|
|Education (loan financed) – 80E||Above 7 lakh||0.5%|
|Education/Medical (non-loan)||Above 7 lakh||5%|
- There is no TCS for the first Rs 7 lakh remitted for education purposes. For amounts beyond Rs 7 lakh:
- A TCS rate of 0.5% is applicable if the remittance is for education purposes and is financed by a loan from a financial institution.
- A TCS rate of 5% applies if the remittance is for education purposes but not financed by a loan from a financial institution.
Example : if someone remits Rs 10 lakh in November 2023 for education without the backing of a loan from a financial institution, the TCS would be calculated as 5% on the amount exceeding Rs 7 lakh. No TCS would be collected on the first Rs 7 lakh, and for the remaining Rs 3 lakh, a TCS of Rs 15,000 (5% of Rs 3 lakh) would apply
Impact of TCS on educational Expenses
- Increased Overall Costs: When you add TCS to your educational expenses, the total amount you need to send abroad increases. This means you’ll be paying more than just the tuition and living expenses.
- Budget Adjustments: Students and parents will have to adjust their budgets to include the TCS. For instance, if TCS is 5% on the amount above INR 7 lakh, for every INR 10 lakh sent, an additional INR 15,000 will be incurred as TCS.
- Immediate Cash Outflow: TCS is collected at the time of making the remittance, so families will experience an immediate reduction in their cash reserves, which must be accounted for in their financial planning.
- Tax Credit Planning: The amount paid as TCS isn’t a total loss; it can be claimed back as a tax credit. This requires careful tax planning and timely filing to ensure that you claim the credit or get a refund if applicable.
- Need for More Funds: Students might need to seek additional funds through savings, loans, or scholarships to cover the TCS and ensure they have enough for their expenses abroad.
- Educational Choices: The additional cost due to TCS could potentially limit choices regarding which country to study in or which university to attend, as students and families consider the financial implications.
Inclusion of Living Expenses
Living expenses for students studying abroad are included in the amount considered for TCS under the LRS. This means that the total remittance amount, which includes both tuition fees and living expenses, is subject to TCS once it exceeds INR 7 lakh in a financial year.
Remittance for purpose of education shall include :
- Remittance for purchase of tickets of the person undertaking study overseas for commuting between India and the overseas destination;
- The tuition and other fees to be paid to educational institute.
- Other day to day expenses required for undertaking such study.
How can parents reduce TCS burden
- Always remember the specified limit that is 7 lakhs.
- Always split the expenses between parents.That way you can send 14 lakhs without TCS .
- Include brothers , sisters or grandparents to increase the limit.
- Loan comes up with less TCS.
- You claim TCS back while filing ITR , Keep documents ready.
TCS on different cards
|Financial Instrument||TCS Applicability||TCS Rate|
|Debit Card||Above INR 7 lakh||0.5%* or 5%|
| Credit Card||NA||NA|
|Forex Card||Above INR 7 lakh||0.5%* or 5%|
Documents Required to claim TCS
To claim a refund for Tax Collected at Source (TCS) on foreign remittances used for education, the following documents are required :
- Income Tax Return (ITR): You must file an ITR in India for the financial year in which the TCS was collected.
- Form 26AS: This is a consolidated tax statement that can be downloaded from the Income Tax Department’s website. It includes details of TCS deducted on your behalf. You should ensure that the TCS details reflected in Form 26AS match the TCS actually paid.
- Bank Statement: A bank statement may be required to prove the remittance of funds abroad.
- Tuition Fee Receipts: If the remittance is specifically for tuition fees, you’ll need the receipts from the educational institution as proof of the expense.
- Form 16A/ TCS Certificate: This is a certificate provided by the bank or financial institution that deducted the TCS, indicating the amount of tax collected and deposited with the government.
- PAN Card: You need to provide your Permanent Account Number (PAN), which is mandatory for tax filings in India.
- Aadhaar Card: Aadhaar number is required for the verification process while filing the return.
- Loan Documents: If the remittance was made through an education loan, you would need to provide documentation of the loan from the financial institution as defined under Section 80E of the Income Tax Act.
- Proof Residency: You may need to provide proof of residency if your tax residency status could affect the amount of tax and TCS applicable.
Steps to claim TCS
You need to carefully follow the detailed income tax filing procedure in India. Here’s a step-by-step guide:
- Gather Required Documents : Collect all the relevant documents, including your bank statements showing foreign remittances, the TCS certificates provided by the bank or financial institution (Form 16A), and receipts.
- Verify TCS in Form 26AS: Log in to the e-filing portal of the Income Tax Department to access and verify Form 26AS.
- Prepare to File Your Income Tax Return (ITR): Choose the correct ITR form based on your income and the type of income you need to declare.
- Declare TCS in Your ITR:In the ITR form, there’s a section for ‘Schedule TCS’ where you need to declare the details of the TCS deducted on your foreign remittances.
- Claim the TCS Amount: Claim the TCS as a tax credit. It will be set off against your total tax liability for the year.
- If the TCS exceeds your tax liability, the excess amount will be indicated as a refundable amount in your ITR.
- Submit and Verify Your ITR: Once you’ve filled out your ITR accurately, submit it online through the Income Tax Department’s e-filing portal.
- Wait for Processing: After verification, the Income Tax Department will process your ITR. During this time, they will check the credits available in your Form 26AS against the claim made in the ITR.
- Refund Issuance : If your return is processed and the refund claim is accepted, the Income Tax Department will issue a refund to the bank account you specified in your ITR.Keep an eye on the ‘Refund Status’ on the e-filing portal to track the progress of your refund.
- Maintain Records: It’s important to keep a copy of your filed ITR, the acknowledgment (ITR-V), and all supporting documents safely for at least 6-7 years in case of any future queries from the tax authorities.
- Engage a Tax Professional if Needed: If the process seems daunting or if you have a complex tax situation, it’s advisable to seek the assistance of a tax consultant.
Remember, TCS isn’t just an additional expense—it’s part of your tax liability that can be claimed back, making it a temporary cash flow consideration rather than a permanent loss. By keeping your transactions within the exemption limits or utilizing educational loans to your advantage, you can minimize the impact of TCS on your educational investments.
It’s clear that planning ahead is more crucial than ever. Whether you’re using a debit card, credit card, or a forex card, understanding how TCS applies to your transactions can save you from unexpected costs.
Frequently Asked Questions
Yes, TCS applies to combined international transactions using multiple cards. This is because TCS is calculated on the PAN level, meaning that all of your international transactions, regardless of the card used, will be aggregated to determine if you have exceeded the TCS threshold.
Example:Suppose you use two different credit cards to make international purchases in a financial year. You spend Rs. 5 lakh on the first card and Rs. 3 lakh on the second card. Since your total international spend is Rs. 8 lakh, you have exceeded the TCS threshold and will be required to pay TCS on all of your international transactions.