If you’re looking to remit money abroad for education, or any other purpose, you should understand how the new TCS rules will affect you. These new rules of TCS on foreign remittance will increase the upfront costs of study and reduce your disposable income.
The new rules will apply to anyone sending funds from April 2020 onward. This includes residents of India, non-resident Indians, and foreign companies.
Under the new rules, you will have to pay 5% TCS if you remit money above 7 lakh INR. However, you will be able to claim a refund in the form of income tax.
Once you have paid the TCS, you will be given a certificate and will be able to claim it in the ITR. You will also be able to check whether your TCS credit has been deposited.
Under LRS (Liberalized Remittance Scheme), a resident Indian can remit up to $250,000 (2,03,64,400 INR) in a calendar year. Remittances can be used for education, medical treatment, investment, or maintenance of a relative abroad. However, if you remit money above 7 lakh, you have to pay TCS.
Continue reading if you want to know more about TCS on foreign remittance in 2023.
What Is Foreign Remittance?
In India, foreign remittance is the transfer of funds between people living in India and abroad. For example, you may be an Indian parent sending money abroad to pay for your child’s foreign education.
There are two types of foreign remittances: inward remittance and outward remittance. When you send money from India to another country, it is outward remittance. However, when you receive money in India from another country, it is inward remittance.
For foreign remittance, you need to choose the right partner. It can be a bank or other companies that provide remittance services. The foreign remittance fees vary from one partner to another. These fees include handling commissions and exchange rate markups.
So, you need to choose a partner that offers competitive rates with no hidden charges. Remigos is one of the best options when sending money from India to anywhere in the world, i.e. UK, US, Canada, etc. We offer the best rates for foreign remittance.
What Is Tax Collection At Source?
Tax collection at source, also called TCS, is a tax that is collected at the time of the sale or purchase of goods. Depending on the type of transaction and the item involved, the rate of this tax will differ.
The seller has to pay this tax, so they are responsible for collecting it from the buyer. Tax collection at source is a legal requirement of the Income Tax Act. It was introduced in 1961 in order to stop money laundering and large-scale tax evasion.
What Is TCS on Foreign Remittance?
If you send money abroad, you have to pay TCS for foreign remittance. Remittances from India through an authorized dealer are subject to TCS on a payment that exceeds Rs 7 lakh in a financial year, according to new section 206C(1G) of Income Tax Act.
Under the LRS, residents of India can remit up to $250,000 per year to fund expenses for travelling, medical treatment, education abroad, gifts and donations, maintenance of relatives, etc. This limit applies to both Indians and non-Indians. However, on foreign remittance above 7 lakh INR, you have to pay 5% TCS.
If you’re an Indian resident, you can send money abroad for any purpose. However, you should know that you’ll have to pay tax on the amount. This is called the TCS on foreign remittance.
You should also be aware that you’ll have to file a tax return. Depending on your income, you may be able to claim a refund on your TCS in income tax.
What Is The Liberalised Remittance Scheme (LRS)?
The Liberalised Remittance Scheme is a way to remit funds in a seamless manner. It was introduced by the Reserve Bank of India (RBI) to reduce the risk of outward remittances.
Under LRS, an individual can remit money to his relatives overseas for education, travel, and medical care. However, remittances under LRS are subject to the terms and conditions of the Foreign Exchange Management Act (FEMA) and the Foreign Trade Policy of the Government of India.
There is also a limit to remittances. The amount of remittances under LRS is limited to $250,000 per year for each individual. However, if you send money above 7 lakh INR, you have to pay 5% TCS.
At What Rate Is TCS On Foreign Remittances Levied?
As per the Income Tax rules, a TCS of 5% will be levied on all remittances of more than seven lakh rupees in a financial year. There are various purposes for which individuals can remit money abroad. These include medical treatment, education and investments.
If you remit more than seven lakh rupees for overseas education, you will have to pay a 5% tax to the government. However, if you don’t produce a PAN card, you have to pay 10% instead of 5% TCS on foreign remittance.
In addition, if an individual has received an education loan to study abroad, the TCS rate will be 0.5%. However, if you don’t have a PAN card, then you have to pay a 5% tax.
The TCS is only applicable for amounts over 7 lakh rupees in a financial year. If the amount is less than the threshold, it will not attract the tax.
What Are The New Amendments To The TCS Rules?
Here are some new TCS tax rules on foreign remittances that can affect your study abroad experience.
- If you send more than 7 lahks INR in a financial year for overseas education, you have to pay 5% TCS on the exceeding amount.
- If you take an education loan from an authorised financial institution to pay for overseas education, you just have to pay 0.5% TCS on an amount exceeding 7 lahks INR.
- If you don’t submit your PAN card while remitting money, the TCS rate will increase to 10% instead of 5%.
- On the TCS amount, GST will not be applicable.
- You can claim a refund of the TCS while filing the ITR.
How Is TCS On Foreign Remittances Calculated?
If a person wants to remit more than INR 7 lakhs, they will have to pay a 5% tax on foreign remittance. If the remittance is made through an authorised dealer, the tax will be collected at the time of transfer.
Here is an example of how the TCS on foreign remittance is calculated.
If you remit INR 10 lakh to the UK from India to fund your child’s overseas education, you will have to pay TCS. It will be collected when you transfer the money with the help of a remittance partner. However, the tax is not calculated on the entire 10 lakh INR. It will only be applicable for the exceeding amount, i.e. 3 lahks INR. So, the TCS applicable will be 5% of 3,00,000 INR, i.e. INR 15,000 (TCS payment). To check the exact amount of TCS applicable on foreign remittance, use our foreign remittance calculator.
How Does the TCS Rule Affect Overseas Education?
TCS rule is a part of the government’s policy to counter tax evasion. It applies to international remittances, product sales, and travel packages. These changes will affect Indian visitors, investors, and students. If you plan to study abroad, you should familiarise yourself with these changes.
You will have to pay 5% TCS of your total foreign spending, including overseas education. So, if you remit more than 7 lakh INR abroad for education, TCS will be applicable. This means that the upfront cost of studying overseas will increase.
However, this is not the case with educational loans. When you pay for overseas education via a loan, you don’t have to pay 5% TCS. In this case, you only need to pay 0.5% TCS on foreign remittances. If you are thinking about going abroad for your studies, you may want to consider taking education loans. This will not only make your studies more affordable, but it will also save you a considerable amount of money on taxes.
What Are The Tax Benefits of Taking An Education Loan Over Self-Funding?
If you are planning to take an education loan to study abroad, you may wonder how the TCS rule amendments of 2020 would affect you. This amendment aims at making the process of taking education loans abroad more economical.
Education Loans are a form of financing that allows students to get the money they need to pay for their education. They are usually for paying towards tuition, books, and other expenses. This financing option can be a great way to save money on education, especially if you are planning to study abroad.
First of all, there are tax benefits to getting an education loan. The interest rate is lower, and the repayment is easier. Additionally, you can get an income tax rebate. Another benefit is that the TCS rate is lower, i.e. 0.5% instead of 5%. If you opt for self-funding, you have to pay 5% TCS on foreign remittance of more than 7 lakh INR.
FAQs
Who Collects the TCS?
When a seller sells goods or services, he must pay a tax called Tax Collected at Source. You can collect it from the buyer at the time of sale. In the case of foreign remittance, the bank disbursing the money collects the tax. It is then reimbursed to the government. If you send money through a remittance partner, then they will be responsible for collecting the tax. If it is a tour or travel package, then the travel agency has to collect the tax.
How to Claim the TCS Refund for Foreign Education?
In order to claim the TCS refund, you need to file the IT return and add details about the TCS. It will include the name of the collector as well as their TAN.
Is TCS Applicable on Foreign Remittance for Overseas Education?
Yes, TCS is applicable on foreign remittances for overseas education. In the case of self-funding, the TCS rate is 5% on an amount of more than 7 lakh INR. However, in the case of an education loan, the TCS is 0.5% on an amount exceeding 7 lahks INR.
How to Save TCS?
If you want to save TCS, you can split the amount between different individuals. It is one of the best, easiest and legal way to save TCS on foreign remittance. For example, if you are studying in UK, and you need 20 lakh INR, you can receive it from the accounts of three different indivisuals (mother, father, sister, brother, friend) to save TCS. You can split the 20 lakh into 7 lakh, 7 lakh and 6 lakh INR. As the amount is less than 7 lakh, TCS will not be applicable.
Conclusion
If you are sending money abroad, you need to know about TCS. Tax Collected at Source is applicable on foreign remittances. As of October 2020, new amendments have been made to the rule. Under The Liberalised Remittance Scheme, individuals can freely remit up to $250,000 per year for educational, investment, and other purposes. However, if the amount exceeds 7 lakh INR, you have to pay 5% TCS on foreign remittances. So, if you are planning to study overseas, you will have to pay 5% TCS on foreign remission. However, you can claim a refund for TCS when filing ITR. If you want to avoid the hassle, you can simply take an education loan for studying abroad as the TCS rate is only 0.5%.
