Gaganpreet Singh Chawla’s dream to pursue a postgraduate degree from The University of Sydney has been overshadowed by a new tax provision proposed in the Indian government’s budget for the financial year 2020-21.
The 24-year-old student, who hails from a middle-class family in the northern Indian state of Punjab, said his parents have already stretched themselves to secure funds for his “international degree.”
“My dad who is a mid-level bank manager has taken loans from his relatives to fund my studies and pitched in every penny he had to ensure I could start my degree in October this year,” said Mr Chawla.
Budget 2020 has imposed a tax collection at source (TCS) at the rate of five per cent on money flowing out of India in the form of remittances, including on money for children studying abroad, travel, purchase of immovable property, investment, maintenance of relatives or medical treatment, etc...
Mr Chawla said that the new tax policy has put a dampener on his "foreign dream."
"There is no way my parents can afford or for that matter arrange an extra five per cent on what they have been able to raise in the past two years at such short notice," said Mr Chawla.
According to this new provision, the TCS will be collected by authorised foreign exchange dealers on remittances of more than Rs seven lakh under the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India.
Moreover, in case of non-availability of identity documents like PAN, or Aadhaar, TCS will be collected at 10%. This amount will be deducted from the payer and paid as TCS to the government’s income tax department.
Ravi Lochan Singh, the president of the Association of Australian Education Representatives in India (AAERI) said the imposition of TCS is a huge blow for students like Mr Chawla and also for those who are already studying in universities and schools outside India.
“The TCS provision means parents (remitters) who wish to send their children to study abroad will have to spend five to 10% extra than what they were doing earlier,” said Mr Singh.
Calling the policy "completely unfair," Mr Singh questioned the Indian government's move to put a tax on money that has already been taxed.
“It is obvious that in most cases, parents sending money to their children abroad, either out of their savings or salaried accounts, for which they have already paid the income tax. So then what is the need of this doubling?” he asked.
However, Delhi-based chartered accountant Nazuk Arora has a different interpretation for the proposed tax provision. She believes the expense that students and their families would incur would only be for a short-term.
“Those paying TCS on foreign remittances can claim a tax refund while filing their returns. There is no doubt that this will effectively block their cash at least for some time,” explains Ms Arora.
According to Reserve Bank of India's data, Indians sent $11.34 billion funds overseas in the financial year 2019, out of which money sent for foreign studies purposes accounted for $3.5 billion outflows under the LRS scheme.
Mr Singh believes the added compliance on foreign remittances, particularly for education, will discourage many middle-class Indian families from sending their children abroad.
“I feel this would have an impact on the number of students queuing up to study in countries like Australia. In worst cases, this might also encourage financially-constrained families to explore illegal channels for sending money to their children,” added Mr Singh.
In addition, the budget has also heralded taxing times for Non-Resident Indians (NRIs) with significant economic activities in India.
After announcing that NRIs not paying taxes in any foreign country will now be taxed in India, a day later the Finance Ministry clarified that they would be liable to pay tax only on income derived from business or profession in India.
The budget has also proposed that a person to be categorised as an NRI, will now have to stay abroad for 240 days as opposed to the earlier stipulated time period of 182 days.
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