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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.
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.
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.
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.
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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.
The following are the major takeaways from the new TCS rules valuable for an education abroad aspirant:
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.
Now comes why education loans for abroad studies is the best choice over self-funding under the TCS rules:
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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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.
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.
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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.
Have queries? Post your thoughts in the discussion section below and get a prompt reply from us.
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