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New tax regulation in India
How Tax Collection at Source impacts your institution and students from India
India is forecast to maintain its position as the second largest sender of international students through to 2027 and is also highly regulated. In order to widen and deepen the tax net in India, a new Tax Collection at Source (TCS) has been recently introduced under the Finance Act 2020. In this post, we will provide you with an overview of TCS and elaborate on how Western Union Business Solutions and our Indian payment partners are set up to ensure full compliance with this new regulation.
What is TCS?
Tax Collected at Source came into effect across India on 1st October 2020. It is payable on cumulative remittances in excess of 700,000 Indian Rupee (₹700k) per remitter from India within a financial year on cross-border transactions that fall under the Liberalized Remittance Scheme. Education payments fall under the Liberalized Remittance Scheme so are therefore subject to the new TCS tax. At the end of the Indian financial year, TCS can be rebated as part of the payer’s tax return or be used to offset any outstanding taxes owed.
How is TCS applied?
To complete an income tax return in India, an individual requires a Permanent Account Number (PAN) which is issued as a laminated card. When a payer in India initiates a cross border transaction through an Authorized Dealer (authorized by the Reserve Bank of India to deal in foreign exchange), such as a bank or payment provider, the payer’s PAN card is checked to confirm the cumulative cross-border remittance value that has been sent for the financial year.
- If the remitter has not exceeded the INR ₹700k limit, they do not have to pay the TCS
- If the remitter has exceeded the limit or will exceed the limit, they must pay TCS on the remitted amount above the INR ₹700k limit
For education payments, there are two applicable TCS rates which apply to the remitted amount above the INR ₹700k threshold:
- 5% if the cross-border payment is self-funded (private)
- 0.5% if the cross-border payment is funded through an Indian bank loan
It is common practice in India to hold multiple bank accounts, so some Indian banks are taking a wider interpretation of the TCS rules and only applying TCS to remittances a payer makes through the bank account they hold with that specific bank. They will not consider cross-border payments the same payer has made through other banks. This is a grey area and we expect further guidance to be released in due course on this point.
How is this tax collected?
It is the responsibility of the Authorized Dealer in India facilitating the cross-border transaction to remit the tax on behalf of the payer to the tax authority. So, if a student from India makes a payment to your institution, this would be handled by the bank or the Indian payment provider the student uses to transfer their funds.
How is this tax managed if a student from India uses the WU® GlobalPay for Students platform?
We have worked with all our payment partners in India to ensure these new tax obligations are being met.
Collection of TCS is managed by branch staff at ICICI. They will do a PAN look up and ask for a loan sanction letter and then apply TCS, if applicable, when the student visits their local ICICI branch. ICICI will remit the tax to the appropriate authorities.
Western Union Agent
Collection of TCS is managed by branch staff at the Western Union Agent location. They will do a PAN look up and ask for a loan sanction letter and then apply TCS if applicable. Each Agent will remit the tax to the appropriate authorities.
Domestic payment into our INR bank account
GlobalPay for Students will calculate the TCS amount and add such amount to the amount due. This will be displayed on the student’s payment instructions. The payer must remit the full amount (amount owed to your Institution and TCS). Our banking partner in India will withhold the amount of TCS payable and remit those funds to the tax authority and your institution will receive the full amount owed.
What does my institution need to do?
There is no action for you to take when receiving payments sent through GlobalPay for Students. Our payment partners in India will manage this process for your students, and there is no need to change your billing amounts. If you work with other payment providers, you should check with them on their processes.
What if a student sends a payment direct into our institution’s bank account?
We always advise our education institution partners not to accept or encourage payments by overseas students direct into their bank account. There are a number of reasons for this:
- Reconciling and matching these payments to the student account creates additional work for your team
- Any delay posting to the student account will impact on student experience
- Publishing or sharing your bank details could expose your institution to fraud
- Payments coming into your account will lack compliance screening (payment providers such as Western Union Business Solutions do this for you)
If a student from India does send a payment direct into your bank account from India, the bank in India will also manage the TCS and remittance to the tax authorities.
Work with a trusted partner
When receiving payments from countries around the world, ensure you are working with a provider that has a global network and strong payment partner relationships. This ensures regulations and processes such as TCS in India are managed on your behalf, minimizing interruption to your cashflow and providing students with a stress-free payment process.
Western Union Business Solutions is your trusted partner delivering:
- Mobile enabled solution enabling your international students to pay their fees in their local currency quickly and easily online, by bank transfer or by credit card
- Seamless payment experience for your students and easy reconciliation for your institution
- 60+ bank relationships and 500+ bank accounts
- ~200 regulatory licenses
- Dedicated regional teams focused on local compliance requirements