The Union Budget for 2023, presented by Finance Minister Nirmala Sitharaman in February, brought forth significant changes in personal finance. One notable modification was the rate of Tax Collected at Source (TCS) for foreign transactions under the Liberalised Remittance Scheme (LRS). The rates have been hiked from 5 per cent to 20 per cent for select transactions, effective from July 1. These revised rates, however, will not apply to expenses related to education and medical purposes.
However, they will be applicable to foreign trips, overseas investments, money transfers abroad, and other remittances.
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Under the LRS, remittances below Rs 7 lakh for educational purposes will not be subject to TCS. Remittances for foreign education, however, would be subject to a TCS of 0.5 per cent beyond the Rs 7 lakh threshold. If money is remitted abroad for educational purposes without an education loan, a TCS of 7 per cent will apply to amounts exceeding Rs 7 lakh within a financial year.
Proper documentation is crucial to establish that the money sent by parents is for education purposes. The remittance form must clearly mention the reason for sending money abroad through the LRS. Students and their parents need to be aware of the documentation requirements required to be submitted while making the transfer. Sufficient paperwork, such as international rental agreements, invoices, and university entrance letters, is required. This ensures that the transfer is categorized as overseas education, qualifying for concessional TCS rates.
In the case of remittance for education, TCS will be applicable when the money sent abroad exceeds Rs 7 lakh per financial year per person. To avoid this, parents can split the payments and transfer the funds through immediate family members such as the father, mother or siblings, George Zachariah, CEO, ExTravelMoney, told Economic Times.
By doing so, each transfer amount will remain below Rs 7 lakh, covering the expenses of the student studying abroad.
In the case of forex cards, however, any payment will attract a 20 per cent TCS. Unlike in the case of debit or credit cards, there is no threshold of Rs 7 lakh on forex card usage.
It’s important to note that TCS is not an independent tax. It is reflected as a tax credit in Form 26AS, which can be claimed against the tax payable while filing an income tax refund (ITR).
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