Now parents can claim TCS credits for children's foreign education

Parents can now directly claim TCS credits in their income tax returns, instead of relying on the original payer (e.g., the foreign educational institution) to provide the credit certificate

The Central Board of Direct Taxes (CBDT) recently amended income tax laws, allowing individuals other than the original tax payer to claim Tax Collected at Source (TCS) credits. The new guidelines offer greater flexibility to parents in managing tax obligations of children who are studying abroad. They can claim TCS credits against their taxable income, potentially reducing overall tax liability.

 

“This change is particularly advantageous for those covering expenses related to studying abroad. Previously, only the student could claim the credit, but now parents or guardians who pay TCS on tuition fees for their children studying abroad can transfer the credit to their own tax filings. To facilitate this, the payer must submit a declaration to the tax collector, specifying that the TCS credit should be applied to another person’s PAN,” said Kunal Savani, Partner, Cyril Amarchand Mangaldas.

 

 

Ritika Nayyar, Partner, Singhania & Co. explains how tax will be calculated. Suppose Suresh pays Rs 20 lakhs as tuition fees for his daughter's foreign education. TCS is deducted at 5 per cent on this amount, totalling Rs 1 lakh. Under the previous rules, Suresh would have needed to obtain a TCS certificate from the foreign university and claim the credit in their income tax return. However, with the new guidelines, they can directly claim the Rs. 1 lakh TCS credit in their return, reducing their taxable income and potentially saving on taxes.

 

“These amendments provide a valuable benefit for parents financing their children’s foreign education. The ability to directly claim TCS credits simplifies the process and offers greater flexibility in tax planning,” Ritika said.

 

What is 12BAA

 

Form 12BAA aimed at improving the disclosure of non-salary income and detailing Tax Collected at Source (TCS). This initiative is in accordance with the guidelines set forth in the Union Budget 2024.

 

How to claim the TCS credit?

 

The person who made the payment (the collectee) needs to provide you with a declaration. This declaration specifies that the TCS credit should be applied to your PAN (Permanent Account Number).

 

Information required in the declaration:

 

Your full name and address as per your PAN details.

 

Your PAN number, which is essential for identifying you as the recipient of the TCS credit.

 

The declaration should clearly state the amount of TCS that was collected and paid on your behalf.

 

Once you receive the declaration from the collectee, you should submit it to the tax collector. The tax collector could be a bank or any institution that collected the TCS.

 

Upon receiving your declaration, the tax collector verifies the details and credits the TCS amount to your PAN.