New TCS Regulations for Sending Money Abroad

New TCS Rules for Foreign Remittance: How to Avoid large TCS while sending money abroad

Parents who send money abroad for their children's education may soon face higher expenses. The Union Budget 2023 has put forth a proposal to raise the tax collection at source (TCS) rate for foreign remittances under the liberalized remittance scheme (LRS) from 5% to 20%.

This increase will apply to various transactions, including foreign trips, investments overseas, sending money abroad, and other remittances, except for education and medical purposes. However, it's important to note that certain expenses related to the maintenance of children living overseas may not be categorized as education expenses for taxation purposes. Consequently, these expenses may attract a higher TCS rate.

Remittance through education loans for foreign education will continue to attract a TCS of 0.5% for amounts exceeding Rs 7 lakh under the LRS. This provision will remain unchanged. However, if the funding source is not an education loan, remitting money overseas for educational purposes will attract a TCS rate of 5% for amounts above Rs 7 lakh.

The new proposal suggests that any remittances made to cover living expenses of students studying abroad (expenses not directly related to education) will now be subject to a TCS rate of 20% for above 7 Lakhs, unless parents can establish that the money has been sent for educational purposes.

Know More About How to pay Education Fees Abroad

Following table gives clear idea about Revised TCS Guidelines for different Remittance Types

Remittance Type	Remittance Type Revised TCS Guidelines (w.e.f 1 OCT 2023)
For the purpose of education, if the amount being remitted is from a loan obtained from any specified institution as defined in section 80E 0.5% of the amount or the aggregate amount over ₹7 lakh per financial year	0.5% of the amount or the aggregate amount over ₹7 lakh per financial year
For the purpose of education other than(1) or for the purpose of medical treatment. 5% of the amount or the aggregate amount over ₹7 lakh per financial year	5% of the amount or the aggregate amount over ₹7 lakh per financial year
Overseas Tour packages	TCS for overseas Tour packages is 5% till 7 Lakhs, 20% there after
Other Purpose	TCS for any other Purpose under LRS is 'Nil' upto 7 Lakhs, 20% above 7 Lakhs
Resident Individual falling under “Specified person category/Non-PAN case/inoperative PAN case	Resident Individual falling under “Specified person category/Non-PAN case/inoperative PAN case Double the normal rate of TCS or 5% whichever is higher. However, TCS rate shall not exceed 20%

To benefit from the lower TCS rate of 5%, parents will need to provide proof that the money is intended for education expenses once the amount exceeds Rs 7 lakh. Expenses such as hostel fees and tuition fees are easily identifiable as education-related, but it may be more challenging to establish the education link for those living off-campus in rented accommodations or shared apartments.

Under the LRS, sending money abroad requires filling of A2 form prescribed by RBI, specifying the purpose of the remittance, and signing the declaration form. If parents fail to establish that the funds are being sent for their child's overseas education, the money will be considered for "other purposes."