Understanding TCS on Foreign Exchange and Remittance

When it comes to studying abroad, it is important that the students know about the financial aspect of it as much as the academic requirements. The student loan, monthly instalments, taxes, foreign exchange and bank accounts are some of the major concerns when it come to  of this to truly be financially independent during your overseas education. In this blog, we have simplified TCS on Foreign Exchange and Remittance in student terms for you.

What is TCS on Foreign Exchange and Remittance?

Basically, TCS or Tax Collected at Source is an income tax payable by the buyer, collected by the seller and then deposited with the government. Confused how it is connected to your study in UK or USA? An amendment was made in the Finance Bill in February 2020 which said that TCS or a tax has to be collected on foreign remittances or foreign transactions for expenditure and investment. So, all foreign remittances mentioned in the LRS are eligible for a 5% TCS but if you don’t have a PAN or Aadhaar Card, you have to pay a 10% TCS. Under that amendment, if a student wishing to study abroad takes an educational loan of more than INR 7 lakhs under the Liberalisation Remittance Scheme, they have to pay 0.5% TCS. Let’s talk about what we mean by LRS.

Latest Updates As Per Budget 2023

There have been certain proposals made on TCS for foreign remittance under LRS, by Finance minister, Nirmala Sitharaman; which if approved by Parliament shall come into effect from July 01, 2023. Check out the table below to get a better idea on changes Union Budget 2023 proposals.

Type of Remittance	Present rate of TCS	TCS rate proposed in Budget 2023
Education Loan	0.5% of amount in excess of INR 7 lakh	No change.
For Education Purposes	5% of amount in excess of INR 7 lakh	No change.
Overseas tour package	5%, no threshold limit	20% without threshold
Other cases	5% of amount in excess of INR 7 lakh	20% without threshold

What is Liberalisation Remittance Scheme (LRS)?

The Reserve Bank of India permits Indian citizens to only remit or transfer a certain amount of funds to foreign countries for investment and expenditure purposes. This is known as the Liberalised Remittance Scheme. We previously mentioned that the tax of foreign remittance is to be collected as TCS. Let’s know what items are included in foreign remittance:

• Foreign Investments
• Education out of India
• Medical Treatment
• Family Maintenance

Tax on Foreign Remittance for Students Flying Abroad

This is what is applicable to you. If you are a student who wishes to study abroad full-time and the amount to be remitted as fees or any other transactions related to education is more than INR 7 lakhs, you have to pay the TCS recently levied. 

Type of Foreign Remittance	TCS levied as of October 1st, 2020
Tuition fees or other education expenses	5%
Education Loan	0.5%

For example, if you remitted INR 20 lakhs as your tuition fees at one of the universities in UK, you are supposed to pay 5% TCS on the exceeding threshold (20,00,000-7,00,000) 

Therefore,

=5%(13,00,000)
=65,000 TCS is to be paid. 

How is the Tax of Foreign Remittance Collected?

The bank that carries out the foreign remittance will charge the TCS to your account and then deposit it with the bank. The same is applicable for education loans. 

Income Tax Refund

You can claim a refund on the TCS or Tax on Foreign Remittance while filing the income tax return. However, it is difficult to claim a refund of TCS on an education loan as the co-applicant can also claim it. A co-applicant is a party other than you whom the bank will turn to if you fail to repay your loan on time. 

FAQs

This was all about TCS levied on Foreign Exchange and Remittance. We know how finance and just six-digit figures can be overwhelming when you aren’t financially equipped to know what it actually is. Leverage Finance by Leverage Edu helps in all aspects of student finance- loans, forex transactions and scholarships.