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    Higher TCS applies to overseas expenditure starting October 1: How will it affect your study abroad budget?


    Parents sending money for other living expenses will face the 20% TCS unless they can prove it is for educational purposes. To mitigate the impact, parents can use international cards, maintain transaction records, use the correct LRS code, and be prepared for income tax returns.

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    Starting from October 1, 2023, new Tax Collection at Source (TCS) rules will come into effect, impacting students planning to study abroad and international travelers. These changes, particularly in the context of the Liberalised Remittance Scheme (LRS) and the purchase of overseas tour packages, have specific implications.

    However, as of June 30, 2023, the Central government has clarified that remittances for education including the following will not attract a higher TCS
    1. Remittance for Travel: This covers the purchase of tickets for a student's travel between India and the country of education.
    2. Tuition and Other Fees: Payments made to the educational institute for tuition and other academic fees.
    3. Day-to-Day Expenses: This encompasses expenses for food, accommodation, local transport, health services, and other daily needs.
    The significant change means that any remittances for expenses related to the living costs of students studying abroad, which are not considered direct education expenses, will face a TCS of 20% unless parents can establish that the funds have been sent for educational purposes.

    Parents sending money to support children living overseas often cover various living and discretionary expenses. If they can provide evidence that the money is intended for education purposes, a TCS of 5% will apply once the remittances exceed Rs 7 lakh.

    However, proving the education link can be challenging for expenses like accommodation. For instance, students living off-campus or in shared apartments may find it difficult to establish the educational purpose of these expenses.

    To remit money abroad under LRS, individuals must visit their bank, complete an A-2 form, specify the purpose of the remittance, and sign a declaration form. If parents cannot establish that the funds are intended for their child's overseas education, the money will be considered for 'other purposes,' subjecting it to a hefty TCS of 20%.

    Transactions conducted through two bank accounts and through debit and forex cards also fall under the LRS scheme. However, there is a need for further clarification on how TCS will be applied to money remitted abroad via forex cards.

    To mitigate the impact of the higher TCS, parents can consider:
    1. Use International Cards: Opt for international cards with zero forex markup and no TCS for expenses up to Rs. 7 lakhs per financial year. This can help you save on international transaction fees and ATM withdrawal charges.
    2. Keep Transaction Records: Maintain a record of your financial transactions related to education expenses abroad. This documentation will be valuable for filing income tax returns and complying with TCS requirements.
    3. Correct LRS Code: Ensure that you use the correct Liberalised Remittance Scheme (LRS) code when making remittances for education. Accurate categorization is crucial to avoid unnecessary TCS.
    4. Be Prepared for ITR: Be ready to file for Tax Collection at Source (TCS) when filing your income tax returns (ITR). Familiarize yourself with the necessary forms and documents to complete the process accurately.
    While TCS is not a standalone tax, individuals can offset the amount deducted as TCS against their other tax liabilities when filing their income tax returns. However, the increase in the TCS rate from 5% to 20% may temporarily increase the financial burden on those remitting funds under the LRS scheme. The adjustment of TCS paid can only be claimed in the tax return, impacting cash flow for taxpayers.
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