My child is going abroad—how can education loans help me reduce TCS and save tax?

As more Indian students pursue higher education abroad, understanding the financial and tax implications is critical. Beyond tuition, living expenses, and airfare, taxation on overseas remittances and student earnings can significantly impact total costs. How can financial institutions and Edtech platforms structure education loans and remittance services to minimize Tax Collected at Source (TCS) under the Liberalised Remittance Scheme? Additionally, what solutions can help students comply efficiently with destination-country tax obligations on part-time work or internships, while optimizing cash flow and avoiding penalties? 

Advice by Parag Jain, Tax Head at 1 Finance

For Indian families, children’s education abroad is no longer just about tuition and living costs. Domestic and overseas taxes play a crucial role in financial planning.

Under the Liberalised Remittance Scheme (LRS), transfers outside India attract Tax Collected at Source (TCS). Tuition fees remitted through an education loan from an approved lender enjoy a concessional 0.5% TCS on remittances above Rs 7 lakh per year. If parents pay fees or living costs directly without a loan, the levy rises to 5% beyond the same limit. For transfers not related to education, such as gifts, travel, or investments, the rate increases further to 20% once the threshold is crossed.

Although TCS can be claimed as credit while filing income tax returns, it still blocks liquidity in the short term. This burden can be reduced by opting for education loans that disburse tuition fees directly to universities, while structured remittance services can further ease complexities and improve cash flow.

Students earning from part-time jobs or internships must comply with local tax rules: obtaining a tax ID, ensuring proper withholding (similar to TDS in India), and filing returns. Countries such as the US, UK, Canada, and Australia have Double Taxation Avoidance Agreements (DTAAs) with India, which help prevent income from being taxed twice. However, the benefit is available only if students remain fully compliant with host-country regulations.

There is an opportunity for fintechs and financial and tax advisors to build integrated solutions. Students and their families need offerings that not only manage TCS planning in India but also align with local compliance overseas. A platform that combines education loans, remittance services, and cross-border tax support can simplify what is otherwise a complicated and fragmented process. This will help families estimate costs in advance, while for advisors and fintechs, it represents a growing opportunity to create value in the international education ecosystem.

Foreign remittance

When you send money abroad, you may be liable to pay Tax Collected at Source (TCS) on foreign remittance under Section 206C(1G) of the Income Tax Act. Banks and authorised dealers deduct this tax when funds are transferred overseas under the RBI’s Liberalised Remittance Scheme (LRS).

From April 2025, TCS rates vary by purpose:

Education loans (u/s 80E): Nil

Education/medical (self-funded): Nil up to ₹10 lakh, 5% beyond

Tour packages: 5% up to ₹10 lakh, 20% beyond

Other remittances (investments, gifts, property, etc.): Nil up to ₹10 lakh, 20% beyond

TCS appears in Form 26AS/Form 27D and can be adjusted against your income tax liability or claimed as a refund if none exists. Exemptions apply to education loans, education/medical remittances under ₹10 lakh, and international credit card spends (until further notice).

You can save tax by claiming deductions on education loan interest under Section 80E of the Income Tax Act, 1961. This benefit applies to loans taken for higher education in India or abroad. The entire interest portion of the loan is eligible for deduction, with no upper limit on the claim amount. However, the benefit is available only for eight years from the start of repayment and only under the old tax regime. It is important to note that the principal repayment is not covered under this section—only the interest qualifies for tax savings.