Sending Money To Child Studying Abroad? You Need To Prove THIS For Lower TCS rate after Liberalised Remittance Scheme

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Foreign remittance TCS: Parents supporting their children studying overseas need to brace themselves for stringent tax implications. New Tax Collection at Source (TCS) rules, effective from October 1 will affect students aspiring to study abroad. The evolved regulations significantly alter the dynamics of the Liberalised Remittance Scheme (LRS).

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Educational Remittance and Tax Implications

The Central government, as of June 30 stipulated that educational remittances, including those for travel, tuition, and day-to-day expenses, won’t attract an elevated TCS under the provision they are explicitly for education. Parents will need to navigate through meticulous documentation to prove that the money sent is strictly for educational purposes to avoid heightened taxation, Economic Times reported.

Any fund remittances not considered direct education expenses will incur a TCS of 20 per cent unless proven otherwise. For parents regularly sending money for a variety of living and discretionary expenses, presenting credible proof linking the money to educational purposes can secure a lower TCS of 5 per cent for remittances exceeding Rs 7 lakh.

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Proving Educational Purpose: A Potential Challenge

However, substantiating the educational connection is particularly strenuous for ambiguous expenses like accommodation. Students residing off-campus or in shared dwellings may encounter complexities in establishing the educational essence of such expenditures, Economic Times reported.

To facilitate remittances abroad under LRS, a meticulous protocol involving the completion of an A-2 form and signinga declaration form is mandated. Failure to convincingly demonstrate the educational intent of the funds will deem the money as being sent for ‘other purposes,’ imposing a substantial 20 per cent TCS.

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Mitigating the Impact of TCS

To circumvent the repercussions of increased TCS, parents should do the following:

1. Opt for international cards
2. Maintain scrupulous transaction records using the correct LRS code when remitting funds for education,
3. Be prepared to file for Tax Collection at Source (TCS) when executing income tax returns (ITR).