Upcoming Changes in TCS for Foreign Transactions

The Government of India has taken steps to ease the changes in TCS. New changes will be implemented from 1st October 2023 instead of 1st July 2023. Regarding relaxation, there will be a threshold limit of Rs 7 Lakhs annually like before. So, there will be no TCS on certain transactions if it is within the limit of Rs 7 Lakhs

What is TCS

The TCS is Tax Collection at Source, deducted in various transactions, including Foreign Remittances. The TCS for Foreign Remittance under LRS has been raised from 5% to 20% in budget 2023. The Government of India will implement these new rules and regulations from 1st October 2023; however, you can get a refund after filing the Income Tax return.

For example, students who want to study abroad and transfer Rs 15 lakh to their account abroad, must pay TCS of Rs 1.6 Lakhs on Rs 8 Lakhs. It was just 5% earlier and has been increased 4-fold to 20%. 

How is TCS applied to International payments?

Before 1st October 2023, the TCS on International transactions applied at 5% if the total amount is more than Rs 7 Lakh in a financial year.

As per the new policy of the Indian Government, if you want to travel overseas and convert your money to any international currency, banks or money exchangers will collect TCS at 20% above the threshold limit of Rs 7 Lakhs.

However, the rate remains the same if the applicant remits money abroad for Education and Medical purposes. But other expenses, such as GIC Deposit for Canada, Germany blocked account, Visa fees, IHS for UK, OSHC, Living expenses, Forex card, and cash, will get affected by this move. University and College Fees payment is considered under Educational costs; the rest are Living and other expenses. 

Furthermore, suppose you travel overseas as a tourist by purchasing a trip package from any travel agent. In that case, you must also pay a TCS of 20% extra to the Travel Agent if the threshold crosses Rs 7 Lakhs in a financial year or 5% if it does not. 

It should be noted that TCS is not an expense paid to the government because it is given back to the PAN Card holder while filing the annual Income Tax Return. So, it is a must for the applicant to file an Income Tax Return to get back the TCS deducted. 

If the student is paying the Foreign University Fees, a TCS of 5% will be applicable if the source of funds is other than Education Loan. If the source is Education Loan, the TCS payable is only 0.5%. There is no change in the TCS rate and threshold limit in the 2023 budget. As before, the threshold for TCS on Education and Medical expenses is Rs 7 Lakh annually. 

The GIC Account deposit for Canada is remitted from the student's personal saving account and should be in a Single transaction. Since the amount is less than Rs 7 Lakh, the student does not pay TCS currently. They have to pay 5% if they cross the threshold limit. But after 1st October 2023, they have to pay 20% TCS after the threshold because this is a form of Living expense and has nothing to do with Education Expenses. 

The Germany-blocked account deposit is the only major expense for students who get admission to public universities in Germany. Currently, the amount is fixed at €11,208, and you have to keep about Rs 60,000 - Rs80,000 extra in your account for TCS collection. Transferring deposits in a single transaction is not mandatory, so some people transfer two transactions from different accounts to avoid TCS.

UK IHS: For students planning to study in the United Kingdom, the Immigration Health Surcharge (IHS) is mandatory for them. If the total IHS for you is £870, the TCS of around Rs 17,000 will be deducted from your Bank account if they paid by Debit Card and already crossed the threshold limit. 

Australia OSHC: Buying Overseas Student Health Cover for the entire length of Study is mandatory for students who want to study in Australia. This expense is around Rs 1.25 Lakh for most students, and you can expect to pay Rs 25,000 for TCS if crosses threshold.

Living Expenses for Study Abroad are the second-major expense after University Fees. If you cross the threshold limit, you have to shell out 20% TCS for Foreign Remittance of Living expenses, as it does not come under Educational expenses. For example, if your living expense as a student is US$10,000, then its TCS will be Rs 1.6 Lakh. 

Forex Card or Cash: A person who wants to travel overseas and purchase or reload their Forex Card has to pay 20% TCS on the total amount above the threshold limit. The same goes for International Debit Cards, but International Credit Cards are exempted from TCS rules.

If the increase in TCS affects Study Abroad Market?

Yes, it will indeed affect the students with limited or just required funds because they will see this as an additional expense. We know the TCS is refundable. The applicant still has to pay upfront, and it will be held for about a year. This move will affect the people who took unsecured advances at interest because they have to take more advances and pay interest on it. 

We encountered multiple transactions where students broke down one transaction into two and remitted them through their parent's account to avoid the TCS deduction. 

How to claim back TCS on Foreign Transactions

To get your TCS back, you have to file an income tax return in India, which will be refunded to your account. Some people are in a dilemma about how they gonna file their Tax Returns while abroad. So, yes, you can file for Income Tax Returns in India while residing abroad as NRI.