Budget 2025: Can some breather be expected in Tax Collected at Source (TCS) for students studying abroad?

With Budget 2025 approaching, experts from study abroad sectors are urging Finance Minister Nirmala Sitharaman to consider lowering the Tax Collected at Source (TCS) rate, which was introduced in the Union Budget 2023. 

When individuals transfer money overseas for purposes such as remittances, travel expenses, buying assets, shopping, and making investments, they are subject to a tax called Tax Collected at Source (TCS). These transactions are facilitated through the Liberalised Remittance Scheme (LRS).

In the 2023 Union Budget, the TCS rate for most remittances (excluding those for medical and educational purposes) was raised from 5% to 20%. This adjustment is aimed at increasing tax revenue and encouraging domestic spending. The TCS rate for education and medical expenses remains at 5% for amounts exceeding 7 lakhs. Taxpayers can claim deductions for TCS when filing their income tax returns, which can be used to offset their tax liabilities.

Experts are now asking the Finance Minister to increase remittances exceeding Rs 7 lakh. 

Rozy Efzal, Co-Founder and Director Invest4edu, said: "The escalating costs of overseas education, driven by the depreciating rupee and inflation in destination countries such as the US and UK, are placing a significant financial strain on Indian families. The Tax Collected at Source (TCS) of 5 per cent on remittances exceeding Rs 7 lakh further exacerbates this burden, as it necessitates additional cash flow to fund education expenses. Currently, a concessional TCS rate of 0.5 per cent is applicable only when remittances are financed through education loans from financial institutions. Expanding this reduced TCS rate to include individuals funding education through personal savings would provide much-needed relief. Additionally, increasing the exemption under Section 80E for education loan interest and raising the applicable loan amount from Rs 15 lakh to Rs 25 lakh for studies abroad would greatly benefit talented individuals aspiring to study abroad and contribute to India's development."

Saurabh Arora, Founder & CEO, University Living, said: "In the Union Budget 2023, the government introduced significant changes to the Tax Collected at Source (TCS) system under the Liberalized Remittance Scheme (LRS), impacting Indian students aspiring for international education. The TCS rate for remittances exceeding Rs. 7 lakh per annum was increased from 5% to 20%, adding a considerable financial burden on families already navigating high education costs."

Deepti Garg, Cofounder, Covan Educom- "The number of students aspiring to study abroad is exponentially increasing. Therefore, it is crucial for aspirants and the parents who fund their education to understand the financial commitments. This varies widely based on the destination and the program of choice. Considering an average yearly expense that includes tuition and living cost begins from USD35,000 for US; USD33,000 for UK; USD 20,000 for Germany; USD30,000 for Australia. Popular destinations have unique cost structures."

Change of rules in 2024

In October 2024, the Central Board of Direct Taxes (CBDT) made changes to income tax rules, allowing individuals to transfer Tax Collected at Source (TCS) credits to someone other than the person who made the payment. The revised income tax laws now permit a different individual to claim the TCS credit, providing taxpayers with greater flexibility in managing their tax liabilities.

Parents or guardians who pay TCS on tuition fees for their children studying abroad can now transfer the credit to their own tax filings, easing the financial burden on families. Previously, only the child could claim the credit, but this new provision allows parents to benefit by reducing their overall tax burden.

According to the new rule, TCS will be applicable if the foreign remittance exceeds Rs 7 lakh, with a 5% TCS rate being charged on the amount paid.

Steps to Claim the TCS Credit
To claim the TCS credit, the following process must be followed:

The person who made the payment (the collectee) must submit a declaration to the tax collector (such as a bank or institution collecting the TCS) specifying that the credit should be applied to another person's PAN.
Required Information:
Name and address of the individual claiming the credit.
Permanent Account Number (PAN) of the recipient.
Amount of TCS paid on the expenses.