20% TCS On Foreign Remittances: Higher Tax For Sending Money To Child Studying Abroad? Check Deets

Among the many significant changes to personal finance, Union Budget 2023 has also imposed 20 per cent Tax Collected at Source (TCS) on foreign remittances from 1 July 2023.

New Delhi: Among the many significant changes to personal finance, Union Budget 2023 has also imposed 20 per cent Tax Collected at Source (TCS) on foreign remittances from 1 July 2023. However, the finance ministry has clarified that this 20 per cent TCS will not apply to education and medical expenses incurred abroad. However, some important factors need to be kept in mind.

How much can parents send overseas in a given year?

As per the Liberalised Remittance Scheme (LRS), parents are allowed to transfer money to their children studying abroad to meet various expenses related to the course. The LRS prescribes a monetary threshold of $250,000 up to which parents can send money abroad during a financial year, that is, 1 April to 31 March. In case the amount to be remitted is above this limit, RBI’s permission would be required.

How does TCS apply for education abroad?

Consider scenario A where parents are sending Rs 30,000 to their child studying abroad every month. This will no attract TCS as the total amount remitted in a year is Rs 3.6 lakh, which is less than the threshold limit of Rs 7 lakh in a year.

Consider scenario B where parents are sending Rs 1 lakh as education-related expenditure for their child studying abroad. The total amount remitted, Rs 12 lakh, exceed the threshold limit of Rs 7 lakh per year. However, in the Rs 12 lakh, the first Rs 7 lakh will not attract any TCS, the remaining Rs 5 lakh will attract TCS at 5 per cent.

What Educational Expenses Qualify For Lower TCS

Educational expenses include tuition, dormitory, lab, exam, books, and stationery fees. Additionally, living expenses, such as food and lodging, can be claimed as educational expenses if a connection between these expenses and education can be established.

What if Students Ops Out Of University Accommodation?

The rent and other expenses automatically get converted as educational expenses if only the student stays in the accommodation provided by the university. But if he/she resides in third-party-provided housing, the sender of funds must establish a connection between the expenses and education to claim them as educational expenses.

Additional Living Expenses Covered Under 5 per cent TCS?

The finance ministry has said that 5 per cent TCS would on remittance for travel and incidental expenses related to education and medical treatment.

As per a report on Business Standard, Keshav Singhania, head of Private Client Singhania & Co said “However, on-ground challenges to monitor the end usage of such funds will have to be ensured. It should not happen that parents/ families use the camouflage of incidental expenses on education to circumvent other remittance purposes, attracting a higher TCS rate of 20 per cent. A detailed clarification is awaited to this effect. Other incidental expenses with no nexus to education shall attract TCS at the rate of 20 per cent.”