5% tax on foreign funds transfer

 

According to online sources, from 1st Oct. 2020, the government of India has started charging tax on foreign funds transfer. Though there are certain conditions under which tax can be levied from 0.5% to 5%. The tax is levied on two types of foreign funds transfer:

To buy travel packages

For international study

In this article I will be discussing about the impacts on students going for international studies.

India is the world's second-largest source of international students and one of the fastest growing market. According to ministry of external affairs, around 7,25,725 students went abroad for international studies till 18.07.2018 and the number are increasing annually. This shows the scope of revenue in the form of tax for the government. Though there are some other issues that might contributed in the government's decision for implementation of taxes for the international studies. One could be the fact that most of the international students from India, belong to the middle or upper middle class families. This class usually do not fill ITR or if they do, they do not show actual income, according to some. Hence government might felt that despite lower income how such families can afford international studies for their children.

For education-related foreign remittance funded by loans, though, the tax will be 0.5% for the amount above Rs. 7 lakh, but will go up to 5% if PAN is not provided. Any amount sent abroad will attract a tax-collected-at source (TCS).

Let us understand this with an example:

An average annual fees for an international student in Canada is around $15,000/-. And living expense (GIC) is $10,000/-. In total, it is going to be around Rs.13,75,000/- by considering 1 CAD= 55 INR. The tax you will have to pay on your transfer will be around Rs. 3,375/- (with PAN) and Rs. 33,750/- (without PAN).

Rs. 13,75,000   -     7,00,000   =  6,75,000/-

Rs. 6,75,000 * 0.5% = Rs. 3,375/-

Rs. 6,75,000 * 5% = Rs. 33,750/-

Banks will automatically deduct the tax at the time of foreign transfer. It is an additional cost to be considered while planning for foreign studies. It is important to discuss with CA or tax lawyer before making any foreign payment. 

Impact on International Students and their families

In India, dream of foreign studies is famous among middle class families. Having a degree from the country like Canada, is not only the dream of students but also of parents for their children. Regardless of the their financial situation, everyone strives to get into the western world. And for such people, student visa is the first thing that comes into mind. Every parent put their hard earned money of their life to stake, just for their children's bright future. They even get ready to take loan or every possible way to send their children abroad. For such people, paying taxes means adding up their cost. This new tax can shake their budget completely.