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How do TCS Rules Make Abroad Education Loans More Rewarding?

How do TCS Rules Make Abroad Education Loans More Rewarding?

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New amendments in TCS on foreign remittance has made abroad education loans more preferable for students. Read to know more about the new TCS rules and its impacts.

vishakha Bhagia
Updated on:  12 Jan 2024  | Reviewed By: 
| 20.3K | 6  min read

TCS rules make abroad education loans more rewarding for study-abroad aspirants. No investment can get you a higher return than the one on your education. A smart move for education loans can now save you around 4.5% more money than you need to spend for education abroad. A smart move for education loans can now save you around 4.5% more money than you need to spend for education abroad. Adding to the purely economic reasons to go for an abroad education loan are the TCS rules introduced by the Government of India in 2020.


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Understanding the benefits of education loans over self-funding after the new TCS rules is crucial for study-abroad aspirants. Also, it is essential to learn about the tax amendment before applying for a loan since the new rule can also be corrected further. Read on for an in-depth understanding of how the new TCS rules favor education loans over self-funding for overseas education.


What is meant by TCS?

It is ideal to begin with understanding what TCS is. TCS stands for Tax Collection at Source, and it is the additional amount the seller of specified goods gets as tax from the customer to be remitted to the government's account. 

  • list items Union Budget 2020 has brought a new rule according to which a 5% Tax Collection at Source (TCS) is applicable to the forex remittances of INR 7 lakh or more in a financial year.
  • list items The new TCS rule comes under the Liberalized Remittance Scheme (LRS).
  • list items This new rule on foreign exchange transactions has been in place since 01 October 2020.  

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What is the LRS (Liberalized Remittance Scheme)?

To start with some basics, the 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, 2020 onwards, this new limit is INR 7 lakh for foreign exchange remittances. This scheme is not applicable to corporates, non-resident Indians (NRI), firms, and trusts, among others. In short it means that  if you want to fund your overseas education (which requires certainly more than 7 lakhs), the tax you pay is 5% of the amount minus 7 lakhs. 


What are the new amendments to the TCS rules?

The following are the major takeaways from the new TCS rules valuable for an education abroad aspirant: 

  • list items A tax of 5% is applicable on an amount more than  INR 7 Lakh in a financial year (not on the total amount).  
  • list items 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.  
  • list items The TCS is collected at the time of receipt of the amount or while debiting the amount payable, whichever is earlier.  
  • list items The TCS rates are increased by an applicable surcharge and Health & Education Cess if the remitter is a non-resident as per the Income-Tax Act, 1961.  
  • list items If the remitter does not furnish his/her PAN details, the TCS will be 10% instead of 5%.  
  • list items GST will not be applicable to the TCS amount.  
  • list items The TCS is 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.



How is the TCS 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.


What is the benefit of taking an education loan over self-funding?

Now comes why education loans for abroad studies is the best choice over self-funding under the TCS rules:

  • list items If you are financing your study abroad without a loan, you need to remit a tax of 5% to the bank. According to the TCS rule, authorized dealers such as banks and remittance companies collect the 5% TCS once the foreign remittance made by a person crosses INR 7 lakh in a financial year.  
  • list items At the same time, the tax you need to pay for overseas education loans is only 0.5%, which is a difference of 4.5%.


Given that education abroad is quite expensive, this difference can be a considerable savings in the amount you need to spend for education abroad. Therefore, students taking an education loan to finance their studies abroad have a notable saving on the tax amount.

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How the TCS rule amendments of 2020 made education loans the obvious choice to fund the abroad studies?

Here’s how the new TCS rules make the abroad education loans a smart option for students. Only 0.5% TCS is 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-7 lakh) if the funds are not arranged through an education loan. If Ashok's son has taken an education loan for his studies abroad, the applicable TCS will be INR 2,500 (0.5% of 12 lakh-7 lakh).

Therefore, these TCS rules changed in 2020 have made taking an education loan to study abroad preferable and economical for students and parents.


How can GyanDhan help?

Since 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.

  • list items GyanDhan is an education financing marketplace and has partnered with government banks like SBI, private banks like Axis and ICICI, and several NBFCs.  
  • list items The entire loan process is  online and students can get everything done from the comfort of their home.  
  • list items The counselor provides assistance throughout the process- from application to the disbursement.   
  • list items What’s more! This counseling is offered entirely free of cost.


Check Your Education Loan Eligibility for Free

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. 

  • list items 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.  
  • list items Best for paying in foreign currency.  
  • list items 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.  
  • list items You can easily transfer the money onto the card directly from a bank account via an app.  
  • list items 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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