The TCS International Rates regulations create a more advantageous situation for individuals pursuing education loans for studying abroad. When considering returns on investment, few options compare to the value of education. Making a strategic choice in favour of education loans can lead to savings of approximately 4.5% compared to the expenses involved in overseas education. It is crucial for prospective study abroad candidates comprehend the advantages of education loans over self-financing following the implementation of these new TCS rules. Additionally, it’s important to grasp the tax amendment before applying for a loan, as new rules for TCS on foreign remittances have been implemented from the 1st of July 2023.
Must Read: STUDY ABROAD: NEW TCS RATES FROM JULY 2023 FOR FOREIGN REMITTANCES
Table of contents
What is TCS?
Before understanding the concept of how TCS international rates make abroad education loans more rewarding, let us know about the basics of TCS. Tax Collection at Source or TCS refers to the extra amount a seller collects from a buyer when the latter purchases something from the former. TCS is only applicable if a payment amount exceeds a prescribed limit. This amount is deducted at source, as specified by the Income Tax Act (IT Act), 1961. As per this legislation, TCS can only be collected on goods and services specified in the IT Act.
TCS International Rates
As per the IT Act 1961, TCS also applies to foreign remittances. This rule was introduced in the Union Budget 2020. With this budget, the government of India imposed 5% on international money transfers. The new TCS rules come into effect on 1st October 2020. This new legislation is covered under the Liberalised Remittance Scheme (LRS).
Also Read: STUDY ABROAD MONEY TRANSFER: NO 20% TCS ON FOREIGN REMITTANCES UPTO INR 7 LAKH FOR EDUCATIONAL NEEDS
What is LRS?
Now, we must understand the concept of LRS and then dwell on the new amendments to the TCS International Rates rules to gain from the education loan to study abroad. To begin with, LRS allows a student/individual to send up to USD 25,000 in a financial year for education and travel expenses. Additionally, the Liberalised Remittance Scheme also permits an individual to invest in foreign stock markets. This threshold is decided by the Reserve Bank of India. All clauses of LRS are determined by the apex bank of India.
Starting on October 1, 2020, a fresh restriction was introduced for overseas money transfers, capping the limit at INR 7 lakh. However, this rule does not pertain to corporates, NRIs, firms, trusts, and similar entities. To put it simply, if you’re looking to finance your international education (an endeavour typically exceeding 7 lacks), you’ll be taxed at 5% of the amount above 7 lacks. However, for education loans, students will have to pay 0.50% on amounts exceeding INR 7 lakh.
Also Read: What is the GST on Foreign Exchange in India?
New Amendments to TCS Rules
However, in 2023 the Union Government of India amended the TCS International Rates in its budget. As per the new rules under Union Budget 2023, for foreign remittances under Rs 7 lakh for educational reasons through LRS, no Tax Collection at Source will be applicable.
However, if remittances for overseas education are facilitated through an education loan paid to a foreign institution, a TCS of 0.5% will be levied beyond the Rs 7 lakh threshold. In cases where money is sent abroad for educational purposes through LRS without utilising an education loan, TCS at a rate of 7% will be imposed on amounts exceeding Rs 7 lakh within a financial year.
These rates are imposed as per the Finance Act 2023 of the Union Government.
Moreover, for a better understanding of study abroad students and their parents, we have tabulated the old and new rates:
| Nature of Foreign Remittance | Old Rate (Up to 30th June 2023) | New Rate (From 1st July 2023) |
| Education Loan from a recognised financial organisation, as mentioned in Section 80E of the IT Act | 0.50% on amounts above INR 7 lakh | 0.50% on amounts exceeding INR 7 lakh |
| Money sent internationally for education purposes, but not out of institutional education loan | 5% on money exceeding INR 7 lakh | 5% on remittances more than INR 7 lakh |
Also Read: Are There Any Limits To International Money Transfers? Here’s The Answer!
Why Education Loan is Better than Self-Funding?
Besides, to understand the positive impact of TCS international rates on abroad education loans, it is necessary to know the advantages of student loans over self-funded education. Here is why student loans for foreign education should be preferred over self-finance education, as per the new TCS rules:
- When funding your overseas education privately (without a loan), you’re required to pay a 5% TCS when remitting the money through a bank. TCS is collected by authorized dealers like banks and remittance firms when the total foreign remittance made by an individual exceeds INR 7 lakh in a financial year.
- On the other hand, for education loans taken to study abroad, the applicable tax is just 0.5%. This creates a notable difference of 4.5% between the two tax rates.
As higher education is very expensive, the aforementioned difference between loan and sefl-funding can help you save a considerable amount of money if you opt for the former.
Also Read: Benefits of Education Loans
How Do TCS International Rates Make Abroad Education Loans More Rewarding?
Now that we have an idea of all the concepts related to TCS on education loans and sending money internationally for education expenses, we can safely conclude that these rates make student loans more rewarding. After serving this conclusion, let us consider an example for a better understanding of why study abroad loans are economical for both students and parents.
Example: Consider the scenario of Priya, who is sending INR 15 lakh to her daughter pursuing education in the UK. If Priya chooses to fund the expenses directly without utilizing an education loan, she would need to pay a TCS of INR 37,500 (5% of 15 lakh – 7 lakh). However, if Priya’s daughter secures an education loan for her overseas studies, the corresponding TCS would be INR 4,000 (0.5% of 15 lakh – 7 lakh). This demonstrates the contrast in TCS amounts based on the financing approach.
Thus, it is clear that students must opt for student loans from authorised lenders like nationalised banks in India, private banks, and non-banking financial companies (NBFCs) to reduce the financial burden.
FAQs
Ans. Student loan beneficiaries need to pay 0,50% TCS on study abroad loans above INR 7 lakh.
Ans. The new TCS rates were introduced in the Union Budget 2023. They came into force on the 1st of July 2023.
Ans. Parents/guardians/spouses of study abroad students need not pay any TCS on amounts below INR 7 lakh in one financial year. However, for outward remittances above INR 7 lakh 5% TCS is applicable.
Stay in tune with Fly Finance to avail yourself of study abroad loans and international money transfers. Connect our experts at 1800 572 126 to opt for these services.
