Planing on going abroad for higher education? All education-related foreign remittances funded by loans will attract a tax collected at source (TCS) of 0.5 per cent for an amount exceeding INR 7 lakh. However, all other foreign fund transfers along with educational remittances not financed through a loan and above INR 7 lakh will be taxed at a TCS rate of 5 per cent.
From foreign tour packages to every other foreign remittance where the money is transferred under Reserve Bank of India’s Liberalised Remittance Scheme (LRS), a tax will be collected at source unless it is already deducted at source (TDS) on the amount. Under the LRS, all resident individuals including minors are allowed to remit up to $250,000 (approx. INR 1.83 crore at an exchange rate of 73.50) in a given financial year. The same can be utilised to pay travel expenses, studying, medical treatment, supporting close relatives, buying gifts and donations, and so on.
Further, it should be noted that the tax will not be an additional cost or tax on the fund transfer which will be reflected as a tax credit in the Form 26AS and any remittances made after March 2020 will be count towards the 7 lakh threshold for the financial year 2020-21.
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Naveen Wadhwa, deputy general manager of Taxmann, said that for students planning to study abroad, if the amount being remitted has been paid from an education loan as defined in Section 80E, then the TCS shall be 0.5 per cent on an amount above INR 7 lakh. However, if the buyer fails to provide his/her PAN, the tax will be collected at the rate of 5 per cent.
Many financial institutions have said that the tax-collected-at source is applicable on remittances to customers from October.
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Wadhwa further added that the provision in the new sub-section (1G) in Section 206C under The Finance Act, 2020 says that the collection of tax shall be done by an authorised dealer or an overseas tour operator.
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