Saturday 8 October 2016

Remittances for Students


Today we will study purely for Remittances for Students

1.      Residential Status Issue:

If student going for education outside India: It clearly means they are not going for Employment

In each year we have to test the physical stay of the student in India, if they are in India > 60 days – They will be consider as Resident of India.

Normally, they cannot take up employment while studying, even the VISA also not permit the same.

However, if they join some extra work in college or somewhere else, for which they receive stipend, then it is not covered under employment.


2.     What does DTAA says:

Article 20 states: Relief is sought to be given in the country of study.

If source of payment for the study, maintenance, etc.  Outside the country, where he goes for study let says USA and, if the money is coming from outside country let say India, the said amount is not liable to tax in USA.

However, if the students happen to get some funding from USA itself, them we have to check the domestic law. So in this case, there is a risk of taxation

Crux:  Money coming from outside USA i.e. from India or anywhere else, and if it goes to USA for student education, maintenance etc, - it could not be liable to tax

Student should be resident of India in the year of leaving or in the immediately preceding year.

If they are not a resident of India, then the above mention relief will not be available. However, we need to check the domestic law for any other relief’ available.


3.      Time limit for the relief.

Normally the relief is available for 5 years,

However in some DTAA Agreements, no time limit is mention, The Agreement states in the article, “anytime which is reasonable”.
So in such cases, we have to take a normal call for a reasonable time.


4.     From whom the remittance is made :

·         If the payment is made by parents : Purely Not taxable

·         Payment by a college/ Institution covered under section 10(23C) or 12AA of Income Tax Act, 1961 – Then it is not to be considering under section 56 of Income Tax Act, 1961 and hence not liable to tax.

·         Scholarship: Covered under section 10(16) of Income Tax Act, 1961 which is Exempt.

However, Definition of scholarship is not defined, so we have to take a general meaning.

If any money is awarded based on some merit, criteria or some manner by an organization/trust/fund whose main object is to support students in their education, then it is covered in the definition of Scholarship.

My Expert Comment: If student anyhow save some money out of Scholarship, then the same would be taxable.

·         Now sometime costs are being paid by a person who is not a relatives.

Then we have to check section 56 of Income Tax Act, 1961. In my view it is taxable.  Most of us miss this section.


5.     If the Payment is made to a Foreign Education Institution

Generally it is not liable to Tax, unless that Foreign Education Institution have Permanent Establishment in India.

In most cases, Foreign Education Institution doesn’t have Permanent Establishment in India due to their policies framework.

Still we need to discuss the same.

Case 1: Suppose any Foreign Education Institution tie – up with any Indian Education Institution to promote their Institution programmes and to enroll students, then this is not to be considering as Permanent establishment.

Case 2: If any Indian Education Institution handed over their business operation to Foreign Education Institution and that Foreign Education Institution comes India and perform the function. i.e. only Infrastructure is of Indian Education Instituting and running by Foreign Education Institution , then it is treated as Permanent establishment.

Now if there is any linkage b/w students going abroad & this PE, then it give rise to taxation



6.      Now if the student is coming to India.

In Such cases, we have to check from where the finding is coming. 

If the funding is coming from outside India, the it is not liable to tax (as per the DTAA Agreement).

However if there is no DTAA, then we have to check the risk of its taxability under section 56 of Income Tax Act, 1961.



Hope this is found interesting and useful to you and the same is clear. Next we will discuss on some more remittances.

Looking forward for a feedback and open discussion.

You can reach me at :
Thanks & Regards,
CA Mohit Bansal
+91-9045773456

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