How the New TCS Rules Made Abroad Education Loans More Rewarding?

    Updated on: 11 Aug 2022

    No investment can get you a higher return than the one on your education. Adding to the purely economic reasons to go for an abroad education loan are the new TCS rules introduced by the Government of India. Union Budget 2020 has brought a new rule according to which a 5% Tax Collection at Source (TCS), under LRS, is applicable to the forex remittances of INR 7 lakh or more in a financial year. This new rule on foreign exchange transactions is applicable from 01 October 2020. 
    Authorized dealers such as banks and remittance companies will collect the 5% TCS once the foreign remittance made by a person crosses INR 7 lakh in a financial year. 
    The TCS applicable to educational expenses arranged through an abroad education loan is only 0.5%. Therefore, students taking an education loan to finance the abroad studies will have a notable saving on the tax amount. 
    Let us traverse through the details of the new remittance rules and also understand how will these changes affect the students.

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    What is the LRS (Liberalized Remittance Scheme)?

    To start with some basics, Liberalized Remittance Scheme (LRS), under the RBI guidelines, allows an individual to remit up to $250,000 (around INR 1.83 crore) in a financial year for expenses such as education and travel, as well as investing in the foreign stock markets. From October 01 onwards, this new limit will be INR 7 lakh for foreign exchange remittance. This scheme is not applicable to corporates, non-resident Indians (NRI), firms, trusts, among others. 

    What are the new amendments to the TCS rules?

    • A tax of 5% is applicable on amount in excess to INR 7 Lakh in a financial year (not on the total amount).
    • The new provision of the TCS will be effective from October 01, 2020.
    • Although the rule is effective from 01 October 2020, this exemption limit is applicable for the current financial year, i.e., 01 April 2020 till 31 March 2021.
    • If the amount is remitted for abroad education purposes through an education loan from any authorized financial institution, the TCS on foreign remittance for education shall be 0.5% on the amount more than INR 7 lakhs.
    • The TCS will be collected at the time of receipt of the amount, or while debiting the amount payable whichever is earlier.
    • The TCS rates are to be increased by an applicable surcharge and Health & Education Cess if the remitter is a non-resident as per the Income-Tax Act, 1961.
    • If the remitter does not furnish his/her PAN details, the TCS will be 10% instead of 5%.
    • GST will not be applicable to the TCS amount.
    • The TCS will be reflected as a tax credit in Form 26AS. Therefore, the amount of TCS can be claimed as a credit against tax payable while filing the ITR. If the TCS is higher than your payable tax, you will get a refund.


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    How will the TCS be calculated?

    The tax is collected at source only on the remitted amount above INR 7 lakh. For example, if someone remits INR 10 lakh in a year, 5% TCS will be calculated on INR 3 lakh i.e. INR 15,000 will be deducted as TCS.

    How the new TCS rules made education loans the obvious choice to fund the abroad studies?

    The good news for students is that only 0.5% TCS will be applicable to the transfer amount of more than INR 7 lakh if the educational expense is financed through an education loan. However, if the educational funds are not arranged through an education loan, a 5% tax on the amount transferred above INR 7 lakh will be deducted. It means that if a student takes financial assistance from anyone other than authorized financial lenders like public sector banks, private banks, and NBFCs, the tax amount will be added to the financial burden. 
    Let us understand it better with an example. Ashok, who is sending INR 12 lakh to his son studying in America, has to pay a TCS of INR 25,000 (5% of 12 lakh-7lakh) if the funds are not arranged through an education loan. If Ashok's son has taken an education loan for his abroad studies, the applicable TCS will be INR 2,500 (0.5% of 12 lakh-7 lakh).
    Therefore, these new TCS rules have made taking an education loan to study abroad preferable and economical for students and parents.

    How can GyanDhan help?

    As it is plain as a pikestaff that abroad education loans are the best choice to fund the abroad studies, here’s where GyanDhan comes to your help. Students can get in touch with us and our education loan counselor will suggest the best education loan options depending upon the overall profile. 
    GyanDhan is an education financing marketplace and has partnered with government banks like SBI, Bank of Baroda, private banks like Axis and ICICI, and several NBFCs. The entire loan process is done online and students can get everything done from the comfort of their home. The counselor provides assistance throughout the process- from application to the disbursement. What’s more! This counseling is offered entirely free of cost. As GyanDhan’s motive is to make education loans easy and accessible to all, students can rely on us to make their abroad education dreams come true. You can Check Your Loan Eligibility to know if you are eligible for an abroad education loan.
    GyanDhan also offers you a unique travel/forex card, powered by VISA. This card can be loaded with currency in INR and can be used across the world with close to zero forex mark-up i.e. you get the exchange rate almost the same as the interbank exchange rate. For paying in foreign currency, this card is the wisest option. This forex card can also be used for paying fees for tests such as GRE / GMAT / TOEFL, application fees, or while traveling and living abroad without thinking about conversion charges. You can easily transfer the money onto the card directly from a bank account via an app. The forex card is free of cost and can help you save quite a lot.

    Have queries? Post your thoughts in the discussion section below and get a prompt reply from us.  

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