Sending your child to study abroad is a big financial commitment because the programme fees, living costs, and travel expenses can burn a hole in your wallet. The concern became more daunting for Indian parents with the recent change in the Finance Act 2023. According to it, a hefty Tax Collected at Source (TCS) of 20% will be charged on foreign remittances. That translates into a massive amount, considering that an average study abroad package runs in lakhs.
NO CHANGE IN EDUCATION EXPENSES
While the increase in TCS sounds like a reason to worry, parents need not stress about it. The Ministry of Finance has stated that the position stays the same for education expenses as before the Finance Act 2023. The 20% TCS rule will not be applicable to foreign remittances for education purposes.
Under the current rule, only a 0.5% TCS applies on education loans exceeding Rs 7 lakh. Conversely, the TCS rate of 5% is applicable on education expenses exceeding Rs 7 lakh in the case of self-financing. If your forex spending for this purpose is up to Rs 7 lakh, you do not need to pay any TCS at all.
HOW TO SAVE ON TAXES ON EDUCATION EXPENSES
As a parent, you should be aware of the steps to save on tax on education expenses. You need to prove that you are using the funds only for educational purposes. The forex provider may seek admission-related documents when you transfer money to your child. You cannot claim the reduced rate for remittance of other expenses beyond educational purposes.
WHAT IS THE LATEST CHANGE IN THE FINANCE ACT 2023
According to the latest announcement made in Budget 2023, foreign remittances, such as bookings for tour packages, will be taxed at 20% TCS of the transaction amount from July 1, 2023. It is a sharp increase from the existing rate of 5%. Besides foreign tour packages, the new rate applies to credit cards on international transactions.
The TCS will be a part of the payment and eventually transmitted to the government. Indian travelers must consider this supplementary financial obligation while planning overseas trips. The imposition of TCS at the increased rate will likely spike the overall expense of international travel. However, they can claim TCS credit later while filing tax returns later.
