Do parents need to pay 20% TCS for their children studying abroad?

The ministry of finance has clarified that there are no changes in education expenses and the position stays as it was before the Finance Act 2023

If you are planning to send your child abroad for higher studies, there is no need to worry. This is because the 20% Tax Collected at Source (TCS) rule does not apply to foreign remittances for education purposes. The ministry of finance has clarified that there are no changes in education expenses and the position stays as it was before the Finance Act 2023.

Under the existing rules, if you have taken an education loan, you only need to pay a nominal 0.5% TCS on the amount exceeding Rs 7 lakh. However, if you are self-financing, the TCS rate is 5% on education expenses exceeding Rs 7 lakh. Importantly, there is no TCS applicable on forex spending for education expenses up to Rs 7 lakh.

“The one thing to note is that it is up to the individual to prove that the use of funds is for education purposes. For this, the forex provider can ask for admission-related documents. What I mean by that is if I were to just transfer some money to my child in the US, I can’t just plainly claim that it is for education purposes. Otherwise, I can transfer any amount claiming it is for education purposes,” explained Ankit Mehra – Co-founder and CEO – GyanDhan.

As per the announcement made in Budget 2023, the TCS rate on foreign remittances, including bookings for tour packages, will rise sharply from 5 per cent to 20 per cent of the total transaction amount from July 1, 2023. This means if the air travel costs Rs 50,000, the corresponding TCS amount would be Rs 10,000, which is equivalent to 20 per cent of the air travel cost.

Not only foreign tour packages but 20 per cent TCS rule also applies on credit cards on international transactions, which means even direct booking would come under the ambit of 20 per cent TCS, as per a finance ministry circular issued on May 16. According to PTI report the ministry on May 16 notified the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023, to include international credit card payments in the LRS.

The tax collected at source (TCS) shall be accumulated as an aspect of the payment and subsequently transmitted to the government. It is imperative for Indian travellers to take into account these supplementary financial obligations while strategizing their global adventures. The imposition of a 20 per cent TCS is likely to augment the overall expenditure incurred by individuals on their travel. However, the traveller can claim TCS credit while filing their tax return. So no overall impact will be seen,” said Rikant Pittie, co-founder, EaseMyTrip.

 

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