Tax collection at source on LRS to hit education abroad

The imposition of tax collection at source (TCS) at the rate of five per cent for education purpose under the liberalized remittance scheme (LRS) will hit the plans of students who are either planning to study abroad or are already studying in the universities and schools in a foreign location. The TCS is imposed on all LRS transactions above Rs 7 lakh including travel overseas.

Of the total of $11.34 billion remitted by Indians overseas in fiscal 2019 under the LRS, about $3.5 billion to foreign countries for education was remitted under the LRS in the fiscal 2019.  The fact that the remitter has already paid income tax on the amount being sent overseas will lead to funds getting blocked with the government till the customer gets a refund after filing the returns, said a tax expert.

The provision requires a remitting bank executing remittances of more than Rs 7 lakh under LRS on request of an Indian resident to ask for tax at the rate of 5 per cent.  This is a tax on the payer, not on the recipient. The payer will get TCS certificate from the bank and will be able to claim credit for this against her/his tax payable for the year.

“The TCS will not only make the entire remittance exercise complicated, it will straightaway increase the cost for the customer by five per cent who is remitting funds overseas to an university or a college,” said a Mumbai-based chartered accountant. For those customers, who are not providing a permanent account number (PAN) during LRS, the TCS will be at the rate of 10 per cent.

PC Mody, Chairman of the CBDT, said the TCS for remittances including education was introduced after some study was made and the government came across cases where the return profile of remitter did not match with the remitter made.  “So it is just a question of cataloguing the remittances and matching returns. The remitter is not paying a second tax but gets credit on that. Education is one of the purpose for which remittance is being made. We are making a distinction on the threshold of remittance made and not the purpose of remittances being made. Remitter is getting a credit in any way. The person who I making remittance, that deduction is being made goes to his account, he gets credit back,” he said.

"As the fees are directly remitted to the accounts of college/universities overseas, there is no question any illegal activity. The Budget has just complicated the entire process by increasing paperwork.  This goes against minimum government and maximum governance idea of the Prime Minister Narendra Modi," said a tax expert.