How Budget 2024 Impacts Study Abroad: Student Debt or Budget Relief?

According to estimates, 18 lakh Indian students will study abroad by 2024, placing India among the top five countries that send students abroad for higher education. While the US, Canada, the UK, and Australia remain the most popular choices for students, there is a growing movement to explore more unusual locations such as Germany, Ireland, Malaysia, Singapore, and New Zealand.

TCS: What is it?

Tax Collected at Source, or TCS for short, is a system in which the payer—in this case, the person funding education—must withhold a certain amount of the payment and deposit it with the government. For payments connected to education, the Indian government implemented special TCS rates. This facilitates improved tax compliance and collection by guaranteeing that a percentage of the money paid overseas for education is collected as tax by the government at the time of the transaction. This proposal aims to make sure that entities and people who send money abroad for education contribute to the national tax pool.

Employees can now notify their employers of any TCS payments they have made under the new regulations. Thanks to this information, employers will be able to take these payments into account when determining the TDS on employee salaries. The action intends to reduce the TDS deduction, which will lessen the financial burden on individuals and streamline the procedure for recovering excess taxes.

Loans for higher education in India

The Union Finance Minister declared that loans for higher education at domestic institutions up to Rs.10 lakh will receive financial support from the government. Union Finance Minister Nirmala Sitharaman said on Tuesday that the government would finance loans for higher education at domestic institutions up to Rs.10 lakh. She stated, presenting the budget for 2024–2025, that e-vouchers for this purpose will be immediately distributed to one lakh students annually, with a three percent interest subsidy applied to the loan amount. A reform of the model skill loan plan, upgrading 1,000 Industrial Training Institutes (ITIs) in a hub-and-spoke architecture, and matching course material to industry skill needs are some of the actions announced by the Finance Minister for the Skill Development sector. The country's workforce, education, and skill-building would get Rs.1.48 lakh crore from the Union Budget for 2024–2025.

Taxes associated with studying abroad

If you take out a loan from a financial institution to pay for your schooling, the TCS rate is zero up to Rs.7 lakh and then 0.5% over that amount. The rate for self-financed education is 5% over Rs.7 lakh and zero up to Rs.7 lakh. The cost of self-financed education includes daily expenses, travel for international students, and other fees paid to educational institutions, including tuition, food, housing, local transportation, health care, and other fees.

The Tax Collected at Source (TCS) regulations provide a beneficial arrangement if you finance your education with a bank or financial institution loan. In particular, there is no TCS on the first Rs. 7 lakh of the loan amount. However, a 0.5% TCS rate would be applied to any loan amount exceeding Rs. 7 lakh. This strategy reduces the immediate tax burden on families and students while maintaining the financial viability and manageability of higher education funding.

The Tax Collected at Source (TCS) rules are stricter when you pay for your education independently. The first Rs. 7 lakh of your payment for a self-financed education is free from TCS. However, a higher TCS rate of 5% is applied to any sum beyond Rs. 7 lakh. The government's strategy for handling more significant transactions associated with self-financed education is reflected in this higher rate, which also offers a little relief for the first lower sums.