Complete Guide to TCS on Foreign Education Loans when Remitting from India

When pursuing higher education abroad, Indian students often need to send money overseas for tuition fees and living expenses. Sending money abroad for education involves understanding India's Tax Collected at Source (TCS): an amount deducted on such foreign remittances to track and tax these transactions effectively.

This article focuses on TCS for education loan remittances, not loan options for Tata Consultancy Services employees.

In this article, we'll also introduce you to Wise — a convenient option for remitting educational expenses from India, and a great companion for international students starting their journey abroad.

Understanding TCS

Don't worry, TCS isn't an extra fee. It is an advance tax collection that can be adjusted against your income tax liability when filing your tax returns. This means that the TCS amount is not an additional tax burden but rather a pre-payment of taxes that you might owe. TCS on foreign remittances is deducted when sending money abroad, above a certain threshold. This means you won't be charged TCS on all remittances, only those exceeding the specified limit.  

What is TCS on Education Loans?

TCS applies to remittances exceeding INR 7 lakhs in a financial year made under the Liberalised Remittance Scheme (LRS).

TCS Rates for Education Loan Remittances

It's important to understand that the TCS applies only to the amount exceeding INR 7 lakhs, not the entire sum. For instance, if you remit INR 8 lakhs for education through an education loan, the TCS will be calculated on INR 1 lakh (₹8 lakhs - ₹7 lakhs) at 0.5%.

If you're not taking a loan, please note that TCS rates differ when paying education fees directly. For more information, check out our guide to TCS when remitting fees directly 👉

Smart Ways to Minimize or Avoid TCS

While TCS is mandatory for foreign remittances exceeding the threshold, there are a few legitimate ways to minimize or avoid it:

• Opting for an education loan to fund your overseas education offers a significant advantage in terms of TCS. It allows you to benefit from a considerably lower TCS rate of 0.5% on the amount exceeding INR 7 lakhs, compared to a 5% rate if you use personal funds.
• Each individual has a INR 7 lakh exemption limit under LRS. If both parents are contributing to their child's education, they can each remit up to INR 7 lakhs without attracting TCS. This can be a useful strategy for families who want to avoid TCS altogether.  
• If you receive scholarships or grants from recognized institutions, these amounts might be exempt from TCS or subject to a lower rate. It's worth exploring scholarship options to potentially reduce your TCS liability.  

Guide to Foreign Education Funding for Indian Students

Sending Money Abroad with Wise: A Convenient and Cost-Effective Solution

While your bank handles the direct transfer of your education loan, you might need to send money for other expenses. Wise offers a convenient and cost-effective solution.

Why Choose Wise for Remitting University Fees?

Wise is a reputed global money transfer platform, and is approved in India by RBI. Wise offers:

• Convenience: Send money quickly and securely through the Wise app, anytime, anywhere. No need to visit a bank!
• Transparent Pricing: Wise shows the transfer fees upfront and uses the mid-market exchange rate with no hidden markups, ensuring you get the best value for your money.
• Easy Account Management: Track your transfers and manage your finances effortlessly with the user-friendly Wise app.

Send money abroad with Wise 🚀

The Wise Account: Your Perfect Companion Abroad

For international students studying in supported countries, the Wise account is a great option for a local account in your new country.

• Multi-currency Benefits: Hold multiple currencies, including INR in the same account
• Everyday Spending: Available in supported countries, you can apply for a linked card for daily expenses, shopping, and ATM withdrawals.
• Seamless International Payments: Send money back home for loan repayments or other needs at the mid-market exchange rate and low, transparent fees.
• Travel with Ease: Use your Wise card for hassle-free spending and withdrawals while traveling, including trips back to India.

Open your Wise Account 🚀

Claiming Your TCS Refund

Since TCS is adjusted against your income tax liability, you can claim a refund if the TCS deducted exceeds your total tax payable for the financial year. Here's the process for claiming a TCS refund:

• Obtain Form 27D: This is a TCS certificate provided by the bank or authorized dealer who collected the TCS from you. It contains details of the TCS deducted.  
• Download Form 26AS: This form reflects your tax credit statement and shows the TCS deducted against your PAN. You can download it from the Income Tax Department's e-filing portal.
• File Your ITR: While filing your ITR, declare the foreign remittances made for education and the TCS deducted. You can claim the TCS as a credit to offset your tax liability.  
• Verification and Processing: After filing your ITR, verify it through the available methods (e-verification, digital signature, etc.). The Income Tax Department will process your return and determine the refund amount.

Be sure to maintain the necessary documentation, including your PAN card, TCS certificates (Form 27D), and any supporting documents like tuition fee receipts and bank statements. By following these steps, you can adjust TCS deducted in the income tax return - and even get the entire amount refunded if you do not owe any tax liability.

Conclusion

TCS on foreign remittance for education loans is a crucial aspect of financial planning for students pursuing higher studies abroad. By understanding the TCS rates, thresholds, and refund process, students can optimize their remittances and minimize their tax burden. Remember that TCS is not an additional tax but rather an advance tax payment that can be adjusted against your income tax liability. Utilizing the exemption limit, opting for education loans, and exploring scholarships are some legitimate ways to avoid or reduce TCS.

While this article provides a comprehensive overview, it's essential to stay updated on the latest regulations and consult with a tax advisor for personalized guidance. They can help you navigate the complexities of TCS and ensure compliance with all applicable rules. Additionally, keep in mind other aspects of foreign remittances for education, such as documentation requirements and potential implications for your tax returns, to ensure a smooth and hassle-free experience.