TCS is often unaccounted or misunderstood part of cost of studying overseas.

What is TCS?

TCS is Tax Collection at Source. TCS is applied by Govt of India in order to track the money being sent out India under the Liberalised Remittance Scheme (LRS).

Is TCS 20% ? Does that mean I have to incur 1.2X of the cost for studying abroad?

Till 7 lakh INR of foreign remittance [i.e. sending money to foreign countries from India] per year is 0% TCS. Above 7 lakh INR of foreign remittance TCS rate is applicable based on following conditions.

1. TCS is 20% for all categories except education and medical treatments from 1st Oct 2023. Earlier it used to be 5%.
2. TCS on education and medical treatment is 5% from 1st Oct 2023. Earlier it used to be 5%.
3. TCS on education funded by education loan from approved financial institutions is 0.5% from 1st Oct 2023. Earlier it used to be 5%.

So your cost of education will not be 1.2X due to change in TCS rules.

e.g. A student’s tuition fees + living cost is 50 lakh INR per year for studying abroad.

1. Student’s parents fund it themselves: First 7 lakh will attract 0 TCS and next 43 lakh INR will attract 5% TCS. That makes total TCS amount to 2.15 lakh INR over and above 50 lakh payment. 52.15 lakh INR of total liquidity needed.
2. Student’s parents have intelligently decided to fund it through education loan. First 7 lakh will attract 0 TCS and next 43 lakh INR will attract 0.5% TCS. That makes total TCS amount to 21.5 thousand INR over and above 50 lakh payment. 50.21 lakh INR of total liquidity needed.

Here, education loan saved the parents or student 1.935 lakh INR in TCS per year on 50 lakh INR of fees.

Is TCS a cost?

No, TCS is not a cost. TCS is an advance tax paid. So TCS paid will be shown in your year end income tax filing as advance tax deposited in your account and can be adjusted against total income tax due. But it becomes a liquidity stuck almost for a year before you can adjust it against your income tax due to the govt.

Reference:

https://incometaxindia.gov.in/communications/circular/circular-10-2023.pdf

https://www.caclubindia.com/articles/understanding-impact-of-new-tcs-rule-on-educational-expenses-for-students-studying-abroad-49812.asp

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