Union Budget 2024 has become a source of keen anticipation for Indian students studying abroad, who are eagerly awaiting the presentation of the interim Budget 2024-25 by Finance Minister Nirmala Sitharaman in the Lok Sabha on February 1. The context for this heightened anticipation lies in the financial intricacies that Indian parents and students navigating overseas education are currently facing.
Guided by the Reserve Bank of India’s (RBI) Liberalised Remittance Scheme rules, parents sending money abroad for their children’s education are subjected to a cap of USD 250,000 per financial year. This regulation sets the framework for financial transactions related to international education, adding a layer of consideration for families.
In addition, the introduction of Tax Collected at Source (TCS) rules for overseas remittances has added complexity to the financial landscape. Since October 1, 2023, authorized dealers, banks, and money changers are mandated to apply TCS on funds transferred overseas for specific purposes such as international education, travel, investment, and medical needs.
Saurabh Arora, CEO of University Living, underscores the importance of potential changes in TCS regulations related to overseas education. A reduction or elimination of TCS for remittances associated with international education is seen as a positive development. Such a move is not only anticipated to alleviate financial burdens on families but also to stimulate more students to explore educational opportunities in their preferred international destinations.
The intricacies of TCS calculations on remittances for foreign education are significant. If the total remittance is up to Rs 7 lakh in a financial year, there is no TCS implication. However, once the remittance exceeds this threshold, the TCS rules come into play. For remittances exceeding Rs 7 lakh, TCS is levied at a rate of 0.5% if the education is funded by a loan from a financial institution, as defined in Section 80E of the Income Tax Act. In cases where no loan is being used to support the remittances, the TCS rate is higher at 5%, but it is applied only to the amount exceeding Rs 7 lakh.
Notably, the category of “maintenance of close relatives” introduces a 20% TCS once international payments exceed Rs 7 lakh in a fiscal year. However, for remittances falling under this category, parents or guardians need only provide paperwork demonstrating that the remittance is for a student studying abroad. If this link is established, the concessional TCS rates of 0.5% or 5% for Overseas Education apply.
An interesting development is the exemption of expenditures made on foreign credit cards from TCS. This implies that Indian students traveling abroad can use international credit cards to cover their expenses without incurring TCS.
Looking ahead, Raghwa Gopal, CEO of MSM Global, a Canada-based education and ed-tech company, anticipates that the Union Budget 2024 might address the TCS rate affecting students studying abroad. Lowering TCS rates could significantly benefit students facing financial challenges in the pursuit of their education.
Gopal suggests that the budget might introduce measures to mitigate the impact of TCS on remittances for education-related expenses. This could include exploring options such as zero forex international cards that are exempt from TCS up to Rs. 7 lakhs annually. Providing such financial guidance to parents sending money overseas for their children’s education could help them make responsible financial decisions and lessen the effects of TCS on tuition and travel costs.
To further support students studying abroad, the Finance Ministry has clarified the taxation of international payments made by students using their international debit or credit cards. Payments of up to Rs 7 lakh per financial year are now exempt from the Liberalised Remittance Scheme (LRS) limits, offering financial respite to students managing their expenses through this channel.
For loans that qualify for the Section 80E tax benefit, the TCS implications are as follows:
– Loan amount up to Rs 7 lakh: No TCS
– Loan amount exceeding Rs 7 lakh: TCS of 0.5%
For remittances not out of a loan (self-funded), the TCS rates are as follows:
– Loan amount up to Rs 7 lakh: TCS of 5%
– Loan amount exceeding Rs 7 lakh: TCS of 5%
In summary, the Union Budget 2024 is awaited with great interest by the Indian student community abroad, as potential changes in TCS regulations could significantly impact their financial landscape, making education more accessible and manageable.