By Prabhjot Singh | Opinion |
If your son or daughter is studying abroad, here is something that will interest or even scare you. The Union Government of India in its Budget has decided to increase the tax on foreign remittances or transfer of foreign exchange from 5% to 20%. This means that if you are sending $10,000 to your ward, you will have to dole out at least $2,500 more as tax.
Intriguingly not much noise has been made against this steep increase in tax on transferring funds abroad for any purpose, including education. Though the tax is only 20% but when any transfer will be made on or after April 1 this year, it will also invite 4-6% bank charges, 0.5% to 3% as foreign exchange mark up and another 1% as brokerage. The additional charges will work out at more than 5% in addition to the tax of 20%.
This will be a big blow to parents of students studying or planning to go abroad for higher studies. Since most of the overseas educational institutions want transfer of funds through recognized banks, use of other channels, including “hawala”, may not be of any help.
Of late, there has been a gradual increase in transfer of funds overseas for various reasons, including investments. Besides, Indians are spending a lot on foreign travel.
A recent report suggested that in the first nine months of the current year, nearly $10 billion was spent on foreign travel. This has been more than any total travel spending in a year in the past. In 2020 at the peak of Covid, this spending on foreign travel was $7 billion.
If the data and figures released by the Reserve Bank of India are any indication, this year Indians have spent almost the same amount in the first nine months of the current fiscal year as what they spent in the entire year last year. The RBI report says that foreign exchange spent on education, maintenance of relatives (especially sons and daughters), gifts and investments, Indians spent $19,354 million. And in the past fiscal, this total foreign exchange spent stood at $19,610 million, which was a record.
Until 2018, total remittances used to be less than half a billion but now it has gone up to $2 billion. While spending on international travel is on the rise, spending on maintenance has shown a downward trend. Investments in securities and equities have almost remained constant at about $10 billion a year, there has been a slight dip in educational remittances. Experts, however, feel that educational remittances will peak when fourth and last quarter fees and other charges are paid.
The increase in tax on overseas remittances will directly hit the education sector. While other remittances are for pleasure or profit, education is an area for career building and clubbing different heads together for the purpose of taxation has come for severe criticism from parents and others whose wards are already or planning to study abroad. They want that education remittances should be charged at old rates of 5% that work out at a total of around 7%. But under the proposed rates, the tax component will go up by more than 300%, from 7% to 24-25%. It will be a big blow for parents whose wards are already studying abroad or those students who have already secured admissions and are required to make remittances after April 1 when the new tax regime becomes operational.
Affected parents are resentful at the silence of various political parties and their leaders on this sad blow to the future of their wards. Punjab will be one of the worst hits by this increase in tax on remittances overseas. Any takers!!!
(Prabhjot Singh is a veteran journalist with over three decades of experience of 14 years with Reuters News and 30 years with The Tribune Group, covering a wide spectrum of subjects and stories. He has covered Punjab and Sikh affairs for more than three decades besides covering seven Olympics and several major sporting events and hosting TV shows.)
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