How much money can parents send to kids Abroad?
PremiumAccording to the govt, there was a 68% rise in students going abroad in 2022
India had limited foreign exchange reserves post-independence. Post-liberalisation changed this, India solidified its position in the global market, and capital flow across the globe became significant for economic growth. Soon, the Reserve Bank of India (RBI) introduced the Liberalised Remittance Scheme (LRS) in 2004. LRS is a scheme that allows residents to remit money outside India. The scheme permits Indians to send up to $250,000 in a financial year without any approval from the RBI, provided the transaction is not prohibited, and the amount is within the prescribed limit. Examples of permissible transactions are: higher education in foreign universities, medical treatment abroad, maintenance of close relatives staying outside of India, investments in securities abroad, emigration, going abroad for employment, etc. Remittance is prohibited for purchase of lottery tickets/sweep stakes, remittances for the purchase of foreign currency convertible bonds issued by Indian companies in the overseas secondary market and remittance for trading in foreign exchange abroad.
There has been an increase in the number of students flying abroad to pursue higher education every year. According to the education ministry, there was a 68% rise in students going abroad in 2022. India recorded a six-year high with 750,365 students moving abroad, a huge jump from 444,553 in 2021.
With so many students moving abroad, LRS allows parents to send money abroad and invest in foreign securities. An RBI report revealed that parents sent $4,991 million to their children abroad to cover education costs in 2019-20. The numbers declined to $3836 million due to covid-19 in 2020-21 and rose again in 2021-22 to $5165 million. The number has increased drastically in the last 10 years. Parents spent only $ 114 million in 2011-12 for education abroad.
The education expenses include tuition fees and living expenses. It should be noted that an amount of $250,000 is applicable for all transactions put together and not separately for tuition fees and accommodation. However, the resident can draw the amount in excess of the prescribed limit of $250,000 if it is required by the university. In that case, documentary proof, such as an estimate of tuition fees from the university, would be required.
Another important factor of LRS is the ability to invest in foreign securities for education abroad. Parents can invest money in the US market and save in dollars to easily afford foreign tuition fees in the future. Investing abroad can offer them a major benefit as they will not lose their savings due to currency depreciation, which will be the case if they save in INR.
Data from RBI shows an increase in the amount Indians invest abroad via LRS in the recent past. Investment in equities and debt reached $747 million in 2021-22 from $472 million in 2020-21. It also revealed Indians invested only $195 million in 2014-15.
Do note that any additional remittance in excess of $250,000 can be made with the prior approval of RBI. The individual must have PAN to remit money outside India. The remittance may be made in any freely convertible foreign currency.
The Union budget hiked tax collection at source (TCS) for foreign remittances under LRS, and the proposed changes will be effective from 1 July. As per the proposed changes, no tax will be deducted if the remittance for education or medical expenses is less than ₹7 lakh, 5% tax will be deducted on the exceeded amount if the amount of remittance for the same exceeds ₹7 lakh and any remittance for education abroad through an education loan will attract a TCS of 0.5% for the amount in excess of ₹7 lakh.
LRS can be an effective scheme for parents to support their children during their study abroad stint. Parents can also take advantage of LRS by investing in the US market to fulfil their child’s foreign education dreams.
Eela Dubey is co-founder of EduFund
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less