The Union Finance Ministry clarified the taxation of international payments made by students using their international debit or credit cards. In an effort to provide financial respite to students studying abroad, the ministry announced that payments of up to Rs 7 lakh per financial year would be exempt from the Liberalised Remittance Scheme (LRS) limits.
This announcement is encouraging news for the large number of Indian students pursuing education abroad. By excluding these payments from the LRS limits, the government intends to facilitate more efficient financial transactions and alleviate students’ tax-related concerns.
The tax implications of other expenditures remain unclear, despite the fact that these pronouncements address certain concerns regarding education and health payments. During an insightful interview with BTTV’s Managing Editor Siddharth Zarabi, renowned tax expert and CEO of Dhruva Advisors, Dinesh Kanabar, shed light on this topic, clarifying that educational expenses are still subject to a 5% tax and not 20%.
Sanjay Laul, Founder and Advisor of education management company M Square Media (MSM), stated, “The Union Finance Ministry has taken commendable measures to reduce the tax burden on international students. By excluding from the LRS limits payments made with international debit or credit cards up to Rs 7 lakh per financial year, we ensure that students have greater financial flexibility and can concentrate on their academic pursuits.”
However, despite this positive development, concerns remain regarding the taxation of students’ daily consumable expenses paid for with family funds. This aspect’s implications remain unclear, leaving room for further discussion and interpretation.
The decision of the Union Finance Ministry is anticipated to have a substantial effect on the cost of international travel for Indian students. As part of the budget for fiscal year 2023, the tax rate on international credit card swipes will increase. Starting in July 2023, a 20% tax will be imposed on all LRS expenditures.
Laul highlighted the government’s dedication to assisting students while maintaining an equitable tax structure. “We recognize the concerns regarding the tax implications of international expenditures by students. The decision to impose a 20% tax on LRS expenditures is part of the government’s efforts to find a balance between promoting educational opportunities and maintaining a sustainable tax structure,” he shared.
Currently, a TCS of 5% is levied on international education remittances that exceed Rs 7 lakh (excluding expenses funded by education loans). According to a representative from an accounting firm in Delhi, Budget 2023 eliminated the Rs 7 lakh threshold for all purposes other than education and medical treatment.
As a growing number of Indian students seek educational opportunities abroad, these measures from the Union Finance Ministry aim to foster a more conducive environment. The government intends to increase accessibility and support the aspirations of Indian students by providing tax relief on international payments and addressing concerns regarding education and health expenses.