Indian students receiving money from India should be aware of new tax rule from July 2023

By A Staff Reporter

MUMBAI April 23: From July 1 2023, an Indian investing overseas or going on a foreign trip is going to cost him more as the Indian budget 2023 has proposed that any outward remittances for purposes other than medical treatment and education will incur a tax collected at source (TCS) of 20% on the entire value.

This is going to have a huge impact on an international student who is studying abroad and relying on money to come from India for the purposes of education and other expenses. Although the government has made it clear that money sent for education purpose has been exempted from the 20 per cent tax the sender has to provide proofs for what the money is sent for.

Speaking to ukmalayalee.com in an exclusive interview, George Zachariah, CEO, ExTravelMoney.com explained on what implications the new tax rule will have on international students from July 2023.

1. How will the new Indian budget decision affect Indian/Kerala students who are receiving money from their parents/relatives in India?

In the new Indian budget, TCS (Tax Collected at Source) has been increased from 5% to 20% and removed the threshold TCS free limit of Rs 7 lakhs for all categories of remittances except for Overseas Education and Medical Treatment Abroad. Thus, for now, parents and students can breathe a sigh of relief as the government hasn’t increased the TCS on overseas education remittance.

However, they’ll still be impacted to an extent as they’d need to show documentation proving their remittance is for education purposes. Otherwise, they won’t be able to avail the discounted and concessional TCS rates for the same.

This is not an issue when sending money abroad for paying university tuition fees which can be easily proven to be educational payment by an invoice/offer letter from the university. However, this could be a challenge when sending money abroad to cover the general living expenses of the student, such as rent and groceries. The living expenses of an Indian student studying abroad falls under the overseas education category. But the challenge is in proving it.

For example, If the student stays in university-approved accommodation abroad, it’d be easy to prove that the remittance is for student maintenance as the remittance will be made in favour of the university’s bank account. However, if the student has their own stay arrangement, outside the ambit of the university, it’d be difficult to get documentation to show the remittance is for student maintenance, and the parents of the student in India would probably have to transfer the money under the maintenance of close relative abroad, which does not enjoy concessional TCS rates. In fact, it has a flat 20% TCS. Thus If parents are sending 2 lakhs for the maintenance of students, they’d have to shell out Rs 40,000 as TCS. Thus, they’d have to pay up flat 20% of the amount being remitted abroad.

Parents who are already supporting their ward’s maintenance expenses abroad may have to shell out a significant amount of cash as tax in upfront costs and this could put a financial burden on them.

Thus, university-approved stay options are more attractive under the new TCS hike rule.

2. What if the student is living in private rented accommodation? Not a university-provided accommodation. Will the bank withhold the 20 per cent in tax money? How will the bank scrutinise this payment and how will they make a decision on whether this is for education or for other purposes?

It’d be crucial for the students to have sufficient documentation such as the overseas rental agreement/invoices and university offer letter showing their period of study. Together with these both documents, it can be sufficiently proven that the maintenance money being transferred from India is for the student’s rent purpose and thus concessional TCS applicable for overseas education must be only charged for it. In such a case, banks would not withhold the 20% Tax money.

3. We have a lot of bad practices where students here are exchanging money like getting pounds here and taking Indian rupees in India/Kerala. There are also many fraudulent persons cheating students here by getting the rupees in India and then not giving the equivalent pounds here. Many students have been cheated. How can such students avoid falling into these traps and what are the implications of getting into such wrong practices? Your advice on this, please. How can such victims make complaints and where can they complain?

While we wholeheartedly agree that these practices are bad, at the same time we are sympathetic to the plight of the Indian middle-class student. They’d have come to the UK after probably taking an education loan and mostly in their desperation to save money they approach such agents.

The main issue is that traditional banks generally charge a very high margin on the exchange rates making “Wire Transfer” prohibitive for students. Since the exchange rates on currency conversions themselves eat up 4 to 7% of their money, they look for alternatives and thus end up using dubious money transfer agents who sometimes dupe them. To disrupt this scenario we established ExTravelMoney.com with the aim of creating an online marketplace where the banks and registered forex vendors compete with each other to grab customers and offer competitive rates. To a large extent, we have succeeded in this endeavour & students typically only have to pay 0.5% to 1% as transfer fees when doing via ExTravelMoney.com

The only way for students to avoid such pitfalls is to be aware of various money transfer/currency exchange options near them. They must leverage the power of technology (like Google Search) to search online and find the best remittance options. Also, they should be aware of the dangers of transacting via unauthorised forex agents. For example, If an unlicensed forex vendor is offering currency exchange, there is a good chance that they could be passing off counterfeit notes. If students try to use these notes abroad, they may get caught and without a purchase bill to show where they procured foreign currency from, they may face grave legal consequences for using fake notes. Alternatively, they can also carry load foreign currency in forex cards and carry abroad. Forex cards can be periodically topped up by parents in India and this offers students a convenient and cost-effective way to carry money abroad as Forex cards usually get the best exchange rates.

Victims of money transfer scams can give a complaint at their nearest police station in India and also initiate actions within the government authorities in their respective countries by providing authorities with the proofs. Always inform your banks about an incident immediately. Also, the police of most states in India have an Economic Offenses Wing with its own website, where complaints can be filed.