From 1 April 2026, education remittances funded by a Section 80E loan carry 0% TCS and self-funded ones 2% above INR 10 lakh. Which loans qualify, and a worked INR 30 lakh split.
TCS on Education Loan vs Self-Funded Remittance: 0% vs 2% Explained
If your overseas tuition is paid out of an education loan from a bank or a Section 80E notified lender, the remittance carries 0% TCS, whatever the amount. If you pay from savings, TCS is 2% on everything above INR 10 lakh in the financial year. On an INR 30 lakh year, that gap is INR 40,000 until you file.
Key facts
- From 1 April 2026: education remitted from a loan taken from a specified financial institution, 0% TCS; self-funded education, 2% TCS above INR 10 lakh per PAN per financial year.
- “Specified financial institution” follows Section 80E: a bank under the Banking Regulation Act, 1949, or an institution notified by the Central Government.
- A loan from a relative, an employer, or a lender not notified under 80E does not qualify, however it is used.
- The 0% rate applies only to the loan-funded part. Any top-up from savings is tested against the INR 10 lakh threshold.
- TCS is refundable through the ITR; it is a prepayment, not a cost.
Why there are two rates for the same tuition fee
TCS on foreign remittances is collected under Section 206C(1G) of the Income Tax Act. When it was introduced, one worry was that a family borrowing to fund a degree would have to borrow extra just to cover the tax collected at source, then wait a year to get it back. So the law gave a concession for education remittances drawn from a loan from a “financial institution” as defined in Section 80E. Budget 2026 took that rate to zero from 1 April 2026, and cut the self-funded education rate to 2% above INR 10 lakh at the same time (it was higher earlier).
The rule turns on one question: where did the rupees come from? Not what they are for. Not who is sending. Just the source of funds. Our post on the new TCS rates effective 1 April 2026 covers the full set of changes; this one focuses on the loan test.
Which loans qualify for 0% TCS
Section 80E(3)(b) defines a financial institution as “a banking company to which the Banking Regulation Act, 1949 applies” or “any other financial institution which the Central Government may, by notification in the Official Gazette, specify”. The text is on the Income Tax Department’s website. A third route, an “approved charitable institution” under Section 10(23C) or 80G(2)(a), is rare in practice.
The loan qualifies if it comes from:
- Any bank under the Banking Regulation Act: SBI, Bank of Baroda, HDFC Bank, ICICI Bank, Axis Bank, Canara Bank, Union Bank and so on, including co-operative banks.
- An NBFC that the Central Government has specifically notified under Section 80E. Ask the lender for the notification number and keep a copy.
- An approved charitable institution that lends for education.
The loan does not qualify if it comes from:
- A parent, uncle, family friend or any other relative, even with a written agreement and interest.
- An employer advance.
- A personal loan, a gold loan or a loan against property, even if you spend the proceeds on tuition.
- A foreign lender, unless notified, which almost none are.
- An NBFC or fintech offering “education financing” without an 80E notification.
The last point causes most of the disputes we see. A sanction letter with the words “education loan” on it is not enough. If your lender is not a bank, get its 80E notification reference before you apply, not after.
What the authorised dealer needs to see
The bank or platform executing your remittance is the “collector” of TCS. It applies 0% only when it holds evidence that the funds are from a qualifying loan. That means three things:
- The loan sanction letter, showing the borrower’s name, the lender, the sanctioned amount, the course and the university. The purpose must be education abroad.
- Proof that the remittance is drawn from the loan account, not from your savings account. Most lenders disburse straight to the university or to the AD against an invoice; others credit a loan account from which the remittance is debited. A bank statement showing the debit from the loan account works.
- The usual education documents: passport, admission or offer letter, fee invoice, PAN and Aadhaar of the remitter, and a relationship proof if a parent is remitting for the child.
The declaration on Form A2 states the purpose code (S0305, travel for education, which covers tuition and hostel fees) and the source of funds. Get the source wrong and the AD will apply 2% or hold the transfer.
If the loan is disbursed into your savings account and mixed with your own money, expect the AD to ask for a paper trail. Some accept a lender’s disbursement advice matching the amount; others apply the self-funded rate. Keep the loan money separate if you can.
When the loan covers part and savings cover the rest
Very few families fund a full degree from a single source. A typical pattern is a bank loan for tuition and savings for living costs, or a loan capped below the fee and a top-up from parents.
Each remittance is tested on its own source. The loan-funded remittance carries 0%. The self-funded remittance is added to your running total of LRS remittances for the year and, once that total crosses INR 10 lakh, the excess is charged at 2% (for education and medical) or 20% (for gifts, maintenance and most other purposes). The INR 10 lakh threshold is per PAN per financial year across all authorised dealers and all purposes. Whether the loan-funded amount consumes it is a reporting question on which ADs differ, so ask yours.
Living expenses paid out of the loan get the same 0% treatment, provided the sanction letter covers living costs. Many bank education loans do; some cover tuition only. If living costs are outside the loan and the parent sends them from savings, that is a self-funded education remittance at 2% above the threshold (send it under purpose S0305 with the admission letter, not as family maintenance, which would attract 20%). See our living expenses page for the document list.
Worked example: an INR 30 lakh year, four ways
Take a student joining a UK master’s programme in September 2026. Total outflow for the year is INR 30 lakh: INR 22 lakh tuition and INR 8 lakh living expenses. Nothing else has been remitted under the family’s PAN this financial year.
| Funding pattern | Loan-funded (0%) | Self-funded | Self-funded above INR 10 lakh | TCS at 2% |
|---|---|---|---|---|
| Fully self-funded | INR 0 | INR 30,00,000 | INR 20,00,000 | INR 40,000 |
| Loan INR 18 lakh, savings INR 12 lakh | INR 18,00,000 | INR 12,00,000 | INR 2,00,000 | INR 4,000 |
| Loan INR 22 lakh (tuition), savings INR 8 lakh (living) | INR 22,00,000 | INR 8,00,000 | INR 0 | INR 0 |
| Fully loan-funded | INR 30,00,000 | INR 0 | INR 0 | INR 0 |
Row two is the interesting one. An SBI loan of INR 18 lakh covers most of the tuition; the family tops up INR 4 lakh and sends INR 8 lakh for living costs from savings. The self-funded total is INR 12 lakh, so INR 2 lakh sits above the threshold and TCS is INR 4,000. Compare that with INR 40,000 had the family paid everything from savings.
Row three shows what happens when the loan exactly covers tuition. The INR 8 lakh of self-funded living costs stays under the threshold, so TCS is zero.
One caveat on row two: if the same parent had already sent INR 5 lakh as a gift to a relative in Dubai in May, that gift eats into the same threshold, and the education top-up starts attracting 2% after INR 5 lakh rather than INR 10 lakh. Our TCS slab page has the full rate table by purpose.
Parent remitting vs student remitting
Under LRS every resident individual has their own USD 250,000 limit and their own INR 10 lakh TCS threshold. A parent can remit against their own limit for a child’s education, with a relationship proof (birth certificate or passport showing the parent’s name). The student can remit from their own account too, and a minor can remit with a guardian countersigning Form A2.
Education loans are normally in the student’s name with a parent as co-borrower. The remittance can be sent by either, as long as the AD can see that the money came from the loan account. Where the parent remits from a loan in the student’s name, take the sanction letter and the disbursement advice along with the relationship proof.
For self-funded remittances the threshold belongs to whoever sends. If a father sends INR 10 lakh and a mother sends INR 10 lakh, neither pays TCS, though the family has moved INR 20 lakh. Each is using their own LRS entitlement. The TCS credit, where collected, goes to the remitter’s PAN, and only that person can claim it.
Getting the TCS back when 2% is charged
TCS is not a tax cost. It is an advance payment of income tax collected on your PAN. The collector issues Form 27D, the amount shows in your Form 26AS and AIS, and you enter it in the TCS schedule of your ITR. If your liability is lower than the TCS collected, the excess is refunded with interest under Section 244A.
A salaried parent with tax due of INR 3 lakh simply pays INR 40,000 less by self-assessment. A retired parent with little taxable income gets the INR 40,000 back as a refund after filing. Either way the money returns; the cost is the wait. At 2% that cost is small. Earlier the education rate was higher and the loan route mattered far more.
How to do this with Fairexpay
On Fairexpay, choose “Tuition fee” or “Living expenses” as the purpose and answer one question: is this remittance funded by an education loan? If yes, upload the sanction letter and, where the money is coming from a loan account, the disbursement advice. Our compliance team checks that the lender is a bank or an 80E notified institution, and the system applies 0% TCS automatically on the quote. If the remittance is self-funded, the system tracks your declared LRS remittances for the year and charges 2% only on the part above INR 10 lakh.
Everything else is the standard flow: KYC with PAN and Aadhaar, passport and admission letter upload, relationship proof if a parent is paying, Form A2 signed digitally with purpose code S0305, payment by UPI or net banking. Transfers go out through RBI-authorised AD-I and AD-II partners with T+1 processing at the live rate with zero markup and a fee from 0.4%. Track each one under “My Remittances”. Start on the tuition fee payments page.
FAQs
Does a loan from my parents count for 0% TCS?
No. The 0% rate applies only to loans from a financial institution as defined in Section 80E: a bank under the Banking Regulation Act or an institution notified by the Central Government. A loan from a relative, however formal, is treated as self-funded and attracts 2% above INR 10 lakh.
My NBFC calls it an education loan. Is that enough?
Not by itself. The NBFC must be notified under Section 80E. Some education-loan NBFCs are; many fintech lenders are not. Ask the lender for the Gazette notification reference and share it with your authorised dealer. Without it, the AD will apply the self-funded rate.
Does the loan-funded amount count toward the INR 10 lakh threshold?
The loan-funded remittance is charged at 0% rather than excluded from the LRS count, so practice varies on whether it consumes the threshold. Ask your AD how they report it. What is certain is that the self-funded remittance is tested against whatever threshold remains.
Can I claim 0% TCS on living expenses paid from a loan?
Yes, if the sanction letter includes living expenses and the remittance is drawn from the loan account. If living costs are outside the loan and you send them from savings, they are self-funded education remittances under purpose S0305 at 2% above the threshold.
Is the TCS I paid lost money?
No. TCS is credited to the remitter’s PAN, appears in Form 26AS and AIS, and is set off against income tax in the ITR. Any excess is refunded with interest. It is a cash-flow cost until you file, not a permanent one.
What if the AD charged 2% on a loan-funded remittance by mistake?
The TCS is still credited to your PAN and refundable through your ITR, so you do not lose it. Ask the AD to correct its quarterly TCS return if possible. For future transfers, provide the sanction letter and proof of debit from the loan account before the remittance is executed.
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Saravana Bhaskar
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