Overseas Education Transfers Become Affordable from April

What is TCS and Why It Matters

Tax Collected at Source (TCS) does not imply a new tax but is an advance taxpayer to the banks or other authorized dealers when money is transferred overseas. This may subsequently be offset against the total tax due by the individual or claimed as a refund to be obtained on submitting income tax returns.

TCS places a short-time financial obligation even though it is refundable because it withholds some amount of funds at the initial stages. This to families contributing high sums towards their education was an arrangement of additional amounts to get them to pay the tax deduction which would only be refunded after submission of returns.

Earlier Tax Structure on Foreign Education Remittances

The TCS rate on money transferred abroad to facilitate education before the new changes was fairly high. In case the remittance amount was above ₹10 lakh during a financial year and was not financed by an education loan, then 5% TCS was charged on the excess amount.

To illustrate, say a parent remitted 15 lakh to another country, the TCS would be requested to tax 5 lakh (the excess over 10 lakh), which would result in tax deduction at 25,000. This added to the immediate financial burden, particularly where the payments had to be made over the course of the academic year.

Even though TCS did not apply to loans made by financial institutions or at reduced rates, personal savings were used by many families and the 5% deduction was a big challenge.