From 1st October 2020, a TCS (Tax Collected at Source) will apply to Indian students seeking to study overseas. This TCS seems bizarre but still… accept it.

The Reserve Bank of India’s (RBI) liberalised remittance scheme (LRS) allows an individual to remit up to $250,000 every year. The provision to collect tax on remittances was introduced in the Finance Act 2020. 

TCS is NOT AN ADDITIONAL TAX and it is also not same as TDS which is an applicable tax deducted at source. Most students are not tax payees and the TCS paid can be claimed as refunds later but since it has to be paid upfront, it needs to be budgeted. TCS credit is available for set-off against total tax liability of the remitter for the respective FY. The new Annual Information Statement (Form 26AS) captures details of tax collected TCS during FY. The remitter should also obtain TCS certificate from authorised dealer banker and claim such TCS paid in the ITR or request refunds in case of lower or nil tax liability.

Here’s all you need to know about the TCS:

• A TCS of 5% was announced in Union Budget 2020. This rate will apply only for an amount exceeding Rs 7 lakh in a financial year. So if one has paid ₹ 25 lakh in a year, then this rate will apply on ₹ 18 lakh. However, in case of education-related foreign remittances funded by loans, a TCS of 0.5% will be levied instead of 5%.

• While the rate of TCS is 5%, it will be 10% in case PAN or Aadhaar is not provided to an Authorised Dealer of the foreign exchange in question. 

So students who are travelling overseas for studies from 1st October 2020 must bear in mind that they obtain a PAN card for sure, if they are not yet tax payees. Many of our students are school leavers or even college students who may not yet be tax payees. This will be essential if one is to to seek refund for the paid TCS.

My comment: We may not like this introduction of TCS but we have to work with it since it is now passed by the parliament and is a law. I remain a bit uncertain as to what this will achieve. The payments for higher education is an expense and not income and is through bank channels anyways and any payment above a certain limit has the PAN details of the remitter and can always be questioned to the source. Only thing the introduction of TCS does is collects some tax upfront and in case of the student most of it will need to be refunded anyways later as the student is mostly not a tax payee in India. The process of seeking refund will add to the concern for the student. Also the payment for overseas education by a student or student’s parents is from an income that has been generated after paying tax and TCS from that income sounds a bit bizarre. Maybe there is something I don’t understand…