If you are planning to send your child abroad for higher education, be prepared to shell out more.
From the next financial year, a tax collected at source (TCS) of 5 percent will be applicable for all remittances outside India above Rs 7 lakh.
Students going abroad for higher education will be the biggest hit because of this move. Other segments like overseas travel, gifts or medical payments will also become dearer. However, areas like foreign travel or gifts are discretionary expenses whereas education is not.
Higher the fees, higher will be the taxation. For instance, if a student enrolls into a Harvard Business MBA programme where the total cost for 2019-20 was $110,740 (Rs 78.6 lakh), a 5 percent tax would be applicable on the excess amount of Rs 71.6 lakh. This would result in additional cost of Rs 3.6 lakh only due to taxation.
This means that all expenses above that limit will be subject to the 5 percent taxation. It is likely that students going abroad for higher education will be directly hit. This is because all the money that is sent globally through the liberalised remittance scheme (LRS) of the Reserve Bank of India (RBI).
Countries like the United States and United Kingdom have a high ratio of Indian students. For instance, there were 2,49,763 Indian students enrolled into higher education institutes in the US alone, in 2017. Data from the Ministry of External Affairs showed that there were 7,50,000 Indians studying abroad in 2018.
The Finance Bill 2020 said that an authorised foreign exchange dealer receiving an amount of Rs 7 lakh or more in a financial year for remittance out of India under the liberalised remittance scheme (LRS) of the RBI shall collect TCS (tax collected at source) of 5 per cent from the buyer.
An average course in a country like US costs about Rs 30 lakh for two years. If a payment of Rs 15 lakh is paid per year, a tax of 5 percent will be applicable for Rs 8 lakh of that amount. This amounts to an additional allocation of Rs 40,000 purely for tax purposes.
While the education sector players were expecting a clarification from the finance ministry excluding this sector from TCS payment, no such exemption has been given.
Most students pay the fees by March for the session that will begin in June. If the fee is paid by March 31, the burden of excess tax can be escaped.
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