Complete Guide to TCS for Foreign Education Fees when Remitting from India

With more Indians exploring studying abroad than ever, sending money overseas to pay for tuition and living expenses becomes crucial. Under Liberalised Remittance Scheme (LRS), students and their parents can send up to USD 250,000 abroad annually to cover education expenses. An important aspect to acocunt for when remitting foreign education fees from India is Tax Collected at Source (TCS) component deducted from the transfers.

Understanding TCS regulations is important for anyone planning to send money abroad for foreign education expenses. In this article, we go over TCS for foreign education expenses and how to claim a refund when you file your tax return.²

What is TCS on Foreign Remittance for Education?

TCS is a tax collected on money transfers from India to overseas. The Income Tax Act 1961 (Refer Sec 206C 1(G)) says that this tax must be collected from the sender. TCS is applied when sending money abroad for foreign education, like paying tuition fees and living expenses.

Here is what you should know about TCS for foreign education fees and remittances:⁴

1. TCS applies to all remittance amounts above INR 7,00,000 in one financial year. For example, if you send INR 9,00,000 in the financial year 2024-25, TCS applies on INR 2,00,000, which is the amount above INR 7 lakhs.
2. TCS rates differ depending on whether you use an education loan or send money from your own sources. If you finance your education through a loan, the TCS rate is 0.5% for amounts that are more than INR 7,00,000. However, the TCS rate is 5% if you use your own funds.
3. TCS applies to funds transferred through bank and transfer providers (such as Wise), debit cards, or forex cards. Paying for foreign education expenses through credit cards are not subject to TCS.

TCS Rates on international transfers for Foreign Education purposes

Here are the current rates for TCS when sending money overseas for education:⁵

Keep in mind:

1. TCS applies to remittances made through debit cards, banking channels, and forex cards for education purposes.
2. TCS on education abroad does not apply to payments made using credit cards.
3. Foreign transfers for other purposes may have a different TCS rate.

How to Pay TCS for Foreign Education Fees

The transfer or service provider's responsibility is collecting TCS on foreign education fees and other purposes. They keep track of your remittances and collect the tax amount when your total remittance amount for that particular financial year is over ₹7,00,000 INR. The TCS amount is debited from the sender’s account at the applicable rate when transferring money abroad.

Parents and students must note that when TCS is collected, the amount is sent to the income tax department. TCS is refundable depending on the individual’s or household’s tax liability. Consult a tax advisor to ensure you can claim the TCS on your ITR.

You must provide the necessary documents and information to the income tax department to process your refund. The refund process may take some time, so it's advisable to plan your finances accordingly.

How to check for TCS deducted

Let’s say your bank has debited your account for TCS when you sent money to pay for tuition abroad. How do you know if the TCS was deducted from your account and remitted to the income tax department? The following statements help you check for TCS deducted from your account and deposited with the government:⁶

1. Form 27D - The tax deductor must issue a TCS certificate, also known as Form 27D, detailing the remittances made during the year and the amount of TCS debited from the account and deposited with the income tax department.
2. Form 26AS—You can view or download Form 26AS from the income tax e-filing portal. It shows the TCS amount remitted to the department.
3. Other Statements—The income tax e-filing portal lets you view/download the Tax Information Statement (TIS) and Annual Information Statement (AIS), which categorise and show the amount of TCS debited from your account and deposited with the government.

How to claim TCS Refund on Education Expenses

The transfer provider or bank will debit your account for TCS when you transfer abroad for education payments exceeding INR 7,00,000 in a financial year. The Income tax department will be notified of the amount. You can then claim a TCS refund when filing your ITR.

Is TCS on Foreign Education Expenses Refundable?

Generally, the TCS debited from a transaction is not refundable after the funds have been sent. However, there may be instances where the funds might be returned unpaid. Under such circumstances, the banks can refund the TCS if the funds are returned on the same day as the remittance or transfer. Otherwise, the sender must file their ITR and claim the refund from the income tax department.

Similarly, the sender might not have any tax liability. Under such circumstances, they can claim a refund from the government when filing the ITR. The TCS is adjusted when you file the tax return and is fully refundable if there’s no tax liability.

Step-by-step guide for claiming TCS

Here are the steps to claim a TCS refund on foreign remittance for education.⁷

1. Gather the necessary statements, like Form 27D and Form 26AS, your bank statements, tuition fee receipts, and overseas expenses. Include education loan documents, if applicable.
2. Declare the foreign remittances made for studies abroad when filing your ITR.
3. Declare the TCS in your ITR in Schedule TCS.
4. You can claim the TCS as a tax credit and set it off against your total tax liability.
5. The e-portal algorithm computes your income and determines your tax liability.
6. If eligible, you will receive a TCS refund in your bank account after your income tax return is finalised.

As always, contact a tax professional to help guide you through what you may need when filing your taxes.

How to Avoid TCS on Foreign Education Fees

It is not advised to avoid paying TCS if you are sending money abroad within the LRS. But here are some tips to help reduce your TCS liability in a specific year.⁸

• Schedule your transfers. One way to avoid the 5% TCS charge in a given year is to stay below INR 7,00,000 when transferring funds abroad. For amounts below INR 7,00,000 there is no TCS charge. If possible, you can split a fee payment between different financial years.

For example, say the foreign university fees are payable in March or April. If INR 10,00,000 INR is due, you can pay INR 6,50,000 INR in March 2024 and the balance of INR 3,50,000 INR in April 2024. Since the financial year changes, you can save on TCS in either of the years. However, you may be unable to avoid the charge for programs longer than one year.

• Split the payment among family members. The Income Tax Act treats each individual as a separate entity. So, you can split the foreign education remittance amount amongst loved ones to ensure that the aggregate transfer for each person does not exceed INR 7,00,000 in a financial year.

• Make use of education loans. You can benefit from the lower TCS charge that applies to foreign education remittances on an educational loan. The TCS rate is 0.5% for amounts exceeding INR 7,00,000. In contrast, the regular rate is 5% if you pay for the overseas educational fees and other expenses from your own pocket. While avoiding TCS, you will have to pay interest on the loan.