Overseas Education: How Are Funds Taxed?

Studying abroad opens doors to global opportunities, but it also comes with financial complexities that extend beyond tuition, airfare, and living costs. One key element often overlooked until the last minute is taxation — both in

India and in the destination country.

According to Ankit Mehra, Co-Founder and CEO of GyanDhan, understanding these obligations early can help students reduce costs and avoid unpleasant surprises later.

Tax on overseas remittances

Under India’s Liberalised Remittance Scheme (LRS), the rules differ depending on the source of funds:

• Education loans: If the money is transferred through a loan from an RBI-approved financial institution, there is no Tax Collected at Source (TCS) — regardless of the amount.


• Self-funded or family-sponsored transfers: TCS applies at 5% on amounts exceeding ₹10 lakh in a financial year.

Mehra illustrates with an example:

“If a student needs ₹35 lakh for the first year in the US, and ₹30 lakh comes from an education loan while ₹5 lakh is sent from family savings, no TCS is applicable in either case, since the loan portion is exempt and the savings portion is below the ₹10 lakh limit," he said.

However, without the education loan, the same ₹35 lakh transfer from personal

savings would result in ₹1.25 lakh TCS — a cost that can be reduced by structuring funding differently.

Taxation on student earnings abroad

Taxes don’t stop at remittances. Students who work part-time or take paid internships overseas must comply with local tax laws.

This can include income from:

• On-campus jobs


• Tutoring or research assistance


• Retail or hospitality work


• Paid internships

“Most countries tax student earnings, and employers must deduct the correct income tax at source,” Mehra notes.

Failing to meet these obligations can lead to penalties.

In the US, for example:

International students on F-1 visas working under Curricular Practical Training (CPT) or Optional Practical Training (OPT) must pay federal and state income tax.

They are generally exempt from Social Security and Medicare contributions, unless they change visa status.

Why planning matters

Experts stress that students should consider tax implications alongside admission and visa processes. Financial advisers recommend:

• Using education loans strategically to reduce TCS outflow.


• Checking tax treaties between India and the destination country to claim eligible exemptions.


• Filing tax returns abroad if required, even for part-time earnings, to avoid compliance issues.

“Whether funding education through loans, family support, or part-time work, taxation is part of your financial strategy — not an afterthought,” says Mehra.

With tuition and living expenses already high, factoring in taxes from the start can free up

resources for other essential costs, ensuring students focus more on academics and less on unexpected financial setbacks.

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