New Delhi: In a significant move aimed at providing financial breathing room to Indian families supporting children studying overseas, the Union Budget has announced a reduction in the tax collected at source (TCS) on education-related foreign remittances. The rate has been lowered from 5% to 2% under the liberalised remittance scheme (LRS), directly easing the immediate cash flow burden for parents navigating the steep expenses of international education.
Immediate Financial Relief for Families
Previously, any remittance exceeding Rs 10 lakh annually for overseas education attracted a 5% TCS, meaning a substantial portion of funds was withheld upfront. Although this amount could later be claimed while filing income tax returns, it created liquidity challenges for families. The revised rate of 2% for both education and medical purposes is expected to mitigate this pressure significantly.
Tangible Savings for Households
The difference is immediately noticeable in practical terms. For instance, consider a family sending Rs 1 lakh every month to cover tuition and living expenses for a student abroad. Under the old 5% TCS regime, Rs 5,000 would be deducted each month, leaving only Rs 95,000 to reach the student. Over a year, this added up to Rs 60,000 in upfront deductions.
With the reduced 2% rate, the monthly deduction drops to just Rs 2,000, allowing Rs 98,000 to be credited overseas. On an annual remittance of Rs 12 lakh, this translates into substantial savings of Rs 36,000 in upfront deductions that families no longer need to manage.
Growing Demand for Overseas Education
Data from the Bureau of Immigration reveals that 7.6 lakh Indian students pursued higher studies abroad in 2024. While this marks a slight decrease from the 8.9 lakh recorded in 2023, it still reflects robust demand for international education. Over the past five years, the number of outbound students has seen sharp growth, rising from 2.6 lakh in 2020 to 4.5 lakh in 2021, 7.5 lakh in 2022, and nearly 9 lakh in 2023 before the recent dip.
Delhi continues to be a major hub, sending thousands of students annually to universities in the United States, United Kingdom, Canada, Australia, and Europe. Foreign education remains a growing aspiration for middle-class families across India, despite rising international tuition fees and often unfavourable exchange rates.
Parental Perspectives on the Change
"For us, every rupee counts," shared Saroj, whose son is pursuing a master's degree in Canada. "Between tuition, rent, and groceries abroad, the costs add up very fast. This reduction helps with our monthly budgeting."
Abhinav, who plans to send his daughter abroad for further studies, noted the practical benefits. "The lower TCS doesn't reduce the total cost of education, but it certainly softens the immediate financial hit. It makes the process more manageable for families like ours."
Expert Opinions and Broader Implications
Some education experts believe this decision could encourage more students to explore joint degrees, exchange programmes, and specialised courses overseas by making initial remittances less burdensome. However, not all observers view the move positively.
Vineeta Sharma, associate professor of economics at Kirorimal College, expressed concerns. "This policy contradicts the Indianisation of knowledge systems, a vision central to the Viksit Bharat mission, by promoting the opposite. It also fuels brain drain and domestic income leakage, as funds flow out of the country instead of being invested in domestic educational institutions."
How TCS Collection Works
TCS is collected by banks or authorised dealers at the time of overseas remittance, with the rate depending on the purpose of the transfer. The reduction specifically applies to remittances made under LRS for education and medical purposes, providing targeted relief in these categories.
As Indian families continue to balance education loans, savings, and monthly remittances, this budgetary measure offers tangible financial relief. While the long-term impact on student mobility and domestic education systems remains debated, the immediate effect is clear: reduced upfront deductions that help families manage the high costs of international education more effectively.
