TCS increased on international trips and studying abroad

Foreign remittance is the transfer of money from one country to another. It is a common practice for people who work or live abroad to send money to their families or friends back home.

However, with the new tax rules coming into effect from July 1, 2022, it is important to understand how the taxation process works and how it will affect you.

New Tax Rules for Foreign Remittance: Impact on Overseas Investments and Travel

Starting July 1, 2023, individuals who invest overseas or plan a foreign trip will incur higher costs due to the proposed increase in tax collection at source (TCS) on outward remittances.

As per the Union Budget 2023, any outward remittance for purposes other than medical treatment and education will attract a 20% TCS on the entire value of the transaction. This increase in TCS rate under the Liberalised Remittance Scheme (LRS) primarily targets the high-value discretionary spending.
The increased TCS rate will also apply to various transactions, including payments for tours, currency exchange for travel, gifts or loans to relatives abroad, purchasing foreign property, and buying foreign stocks.
Even individuals immigrating abroad and remitting their funds to foreign banks will be subject to the 20% levy.

Thus, it is essential for individuals planning any foreign remittance for discretionary spending to understand the new tax rules and plan their finances accordingly to minimise the impact of the increased TCS rate.

Tax Implications for Remittances towards Overseas Education

Currently, any remittances for overseas studies exceeding Rs 7 lakh attract a TCS of 0.5% if made via an education loan. However, if the remittance is not via a loan, a TCS of 5% applies on the amount exceeding Rs 7 lakh. But, if the remittance is towards meeting living expenses of a student studying abroad, it will attract a TCS of 20% without any threshold, further raising the burden on parents, unless the education link can be established.

If the parent can establish that the money is for education purposes, TCS will be 5% if the aggregate amount is over Rs 7 lakh.
In cases where the education link cannot be established, parents will have to pay a TCS of 20% without any threshold limit.

Options for Adjusting Tax Collected at Source (TCS) on Overseas Remittances and Education Expenses

If there is no taxable income, TCS can be claimed as income-tax refund.
Alternatively, the TCS amount can be used as a credit at the time of ITR Filing or for computing advance tax.

Process to Adjust TCS

When the bank deducts TCS, they provide a TCS certificate which can be used to claim TCS in your ITR filing.
The TCS credit collected on behalf of the sender will be reflected in Form 26AS, which can be taken as credit at the time of filing the ITR.
Travel agent will collect TCS from buyer and do TDS return filing by reporting buyer PAN so that buyer can claim refund of tax on his/her income tax return filing

Also Read: Learn the Difference Between TDS and TCS

Important Note: If the total and final tax payable is less than the TCS collected, the TCS credit will be refunded. However, no interest will be received on the blocked TCS amount