Published by: Business desk
Last updated: June 11, 2023, 4:45 PM IST
The 2023 EU budget, presented by Finance Minister Nirmala Sitharaman in February, brought significant changes to personal finance. One notable change was the withholding tax (TCS) rate for foreign transactions under the Liberalized Remittance Scheme (LRS). The rates increased from 5 percent to 20 percent for select transactions effective July 1. However, these revised rates do not apply to expenses related to education and medical purposes.
However, they apply to foreign travel, foreign investments, money transfers abroad and other money transfers.
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Under the LRS, remittances of less than Rs 7 lakh for educational purposes are not subject to TCS. However, remittances for foreign education would be subject to a TCS of 0.5 percent above the Rs 7 lakh threshold. If money is transferred abroad for educational purposes without a student loan, a TCS of 7 percent will apply to amounts exceeding Rs 7 lakh within a financial year.
Proper documentation is crucial to establish that the money parents send is for educational purposes. The transfer form must clearly state the reason for sending money abroad via the LRS. Students and their parents should be aware of the documentation requirements to be submitted when making the transfer. Sufficient paperwork, such as international rental agreements, invoices, and university admission letters, is required. This ensures that the transfer is categorized as teaching abroad and eligible for favorable TCS rates.
In the case of remittances for education, TCS applies when the money sent abroad exceeds Rs 7 lakh per financial year per person. To avoid this, parents can split the payments and transfer the money through immediate family members such as the father, mother or siblings, George Zachariah, CEO of ExTravelMoney, told me. Economic times.
By doing so, each transfer amount remains below Rs 7 lakh, which covers the cost of the student studying abroad.
However, in the case of forex cards, each payment attracts a TCS of 20 percent. Unlike with debit or credit cards, there is no threshold of Rs 7 lakh for using forex cards.
It is important to note that TCS is not an independent tax. It appears as a tax credit on Form 26AS, which can be claimed against the tax due while filing an income tax refund (ITR).