Funding your child's foreign education as an NRI: the TCS you do not owe

The reassurance up front: the much-publicised tax collected at source on money sent abroad is a resident's problem, not an NRI's. It is levied under Section 206C(1G), and it is triggered by a remittance under the Liberalised Remittance Scheme.

The LRS is the scheme that lets a resident individual send up to USD 250,000 a year abroad, and it is defined as resident-only. An NRI is not a resident individual for this purpose, so you do not remit under the LRS at all, and a tax that only attaches to an LRS remittance cannot attach to you. This is why the blanket warnings about a 20% collection on foreign education payments do not describe your position: they are written for resident parents sending money under their LRS allowance, and you are sending money on a different footing entirely.

It helps to see why every route an NRI uses sits outside the LRS. If you fund the fees from an NRE account or from a foreign bank account, that money never enters the LRS, because the LRS governs a resident sending rupee funds abroad, not an NRI moving their own foreign-earned or NRE money. So there is nothing for Section 206C(1G) to collect on.

If you send from an NRO account instead, the remittance runs on the separate NRO facility, under which an NRI can remit up to USD 1 million per financial year, and that facility is not the LRS either. So an NRO remittance for your child's fees is also outside the collection. Whichever of your accounts the money leaves from, the 20% simply does not arise. The only situation where the collection appears at all is if a resident in India, say a grandparent, uses their own LRS allowance to send the money, and even then education is treated gently, as the next point explains.

This matters if a resident relative is co-funding, because the scary 20% is not the education rate. For a resident sending money abroad for education, the collection is far lighter than the headline. Where the education is funded by a loan from a specified financial institution, the rate is nil, no collection at all. Where it is self-funded, education and medical remittances carry only a low rate above the yearly threshold, well below the 20%, and the threshold itself was raised to 10 lakh rupees.

The 20% figure that frightens people is the rate for other, non-education LRS purposes above the threshold, not for education. So even in the one case where a resident co-sponsor is inside the LRS, an education remittance is either nil or a small percentage, and it is fully creditable against their tax when they file. The takeaway for the family is that nobody in a normal education-funding arrangement is actually facing a real 20% cost on the fees.

The flip side of the question is what you can claim, and here an NRI usually gets less than a resident. Section 80E allows a deduction for the interest paid on an education loan, with no upper limit, for up to eight years. But it comes with conditions that an NRI often cannot meet.

The loan has to be from an Indian financial institution or an approved Indian charitable institution, so a loan taken abroad does not qualify. You need Indian taxable income to set the deduction against, because a deduction is worthless without Indian income to reduce. And it is available only under the old tax regime; the new regime, which is now the default, disallows it, so you would have to actively opt into the old regime to use it. A typical NRI parent, funding fees from abroad with no Indian loan and little or no Indian income, fails these tests and gets nothing from Section 80E, which is not a loss as such, only a deduction that was never really available to them.

Anil, an NRI in Dubai, sends about 40 lakh rupees over two years for his daughter's UK degree, partly from his NRE account and partly from an NRO account holding his Indian rent.

He has read about the 20% collection and expects a big deduction at the bank. Neither applies. The NRE transfers are outside the LRS, so no collection arises. The NRO transfers run on the NRO facility, well within the USD 1 million a year limit, and are also outside the LRS, so again no collection. His CA confirms there is no tax collected at source on any of it. On the deduction side, Anil has no Indian education loan, so Section 80E gives him nothing, and his CA tells him that plainly rather than let him chase it. The net position is simple and reassuring: Anil pays no TCS on funding his daughter's education, and there is no education-loan deduction to claim, so the whole worry that started him off turns out not to be his.