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The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman on Saturday, has introduced revised Tax Collected at Source (TCS) rates on foreign remittances, bringing relief to Indian students planning to study abroad. The changes, which lower the tax burden on international education expenses, aim to improve financial accessibility for families funding overseas studies.
What is TCS?
Tax Collected at Source (TCS) is a tax mechanism wherein the seller collects a specified percentage of tax from the buyer at the time of sale. In the context of foreign remittances from India, TCS is applicable under the Liberalised Remittance Scheme (LRS) and is collected by authorised dealers when individuals remit funds abroad. ALSO READ: Tax bonanza: What Budget 2025 means for India's beleaguered middle-class
Simply put, the government has changed the tax rules for students sending money abroad for education.
It is important to note that TCS is not an additional tax but an advance tax payment. The amount collected as TCS can be adjusted against an individual’s total income tax liability when filing the Income Tax Return (ITR). If the TCS paid exceeds the tax liability, a refund can be claimed for the surplus amount.
Budget 2025: Changes in TCS on foreign remittances
The government has revised TCS rates on educational remittances, particularly for students taking loans from recognised financial institutions and approved charitable organisations under Section 80E of the Income Tax Act.
The updated provisions include:
- No TCS on remittances up to ₹7 lakh per financial year for education-related expenses.
- No TCS on remittances exceeding ₹7 lakh if the loan is secured from an institution covered under Section 80E.
- For students whose loans are not covered under Section 80E or for those funding their education through personal savings or non-recognised loans, the TCS rate remains at 5 per cent on amounts exceeding ₹7 lakh per year.
What is Section 80E?
Section 80E of the Income Tax Act allows individuals to claim a tax deduction on the interest paid on loans taken for higher education. The loan must be from a recognised financial institution or approved charitable organisation. The deduction applies only to the interest portion of the loan and can be claimed for up to eight years or until the interest is fully paid, whichever is earlier. This provision helps reduce the tax burden for students financing their education through loans.
Previous tax rules on education remittances
Before the latest revisions, Section 206C(1G) of the Income Tax Act required authorised dealers (banks and financial institutions handling foreign exchange transactions) to collect 0.5 per cent TCS on remittances up to ₹7 lakh for education loans from recognised financial institutions or charitable organisations under Section 80E. For amounts exceeding this threshold, a 0.5 per cent TCS was applied.
For students not using Section 80E-compliant loans, a 5 per cent TCS was levied on remittances exceeding ₹7 lakh annually.
