Top 10 tips for students heading abroad
10 tips for students heading abroad
How much fees the RBI allows you to remit
The RBI regulation states that 'for studies abroad the estimate received from the institution abroad or $100,000 per academic year, whichever is higher, may be availed of.' So you can freely remit an amount of up to $100,000 per annum from India towards the tuition fees. If your fees exceed $ 100,000 per annum, then you need to take a letter from the foreign college giving the estimate of fees. You can remit the amount mentioned in the letter without taking permission from the Reserve Bank or any other authority.
"All you need to do is to apply at the bank where you have an account. You would need to submit an application along with form A2 and if required the admission letter mentioning fees," explains Rajesh Dhruva, a chartered accountant.
Best way to remit fees
If you have taken a bank loan, the bank remits the fees directly to the university as per documents submitted by you.
If you are paying the fees out of your own sources, you can either wire the funds while you are in India or you can carry a demand draft in the name of the university while you travel. While the difference in cost may not be significant, a demand draft can take 7-10 days to clear while a wire transfer can be done in a couple of days.
Best way to remit regular living expenses
As we saw in point 1 above, the higher of $100,000 or total study fees is allowed to be remitted each academic year.
In addition, a student may also carry with him while travelling, an amount of $10,000 for incidental expenses (that is, expenses other than fees) out of which $3,000 may be carried in the form of foreign currency.
Receiving money from India afterwards
The Reserve Bank of India (RBI) has accorded a special status for students going abroad to study. Students will now be considered Non Resident Indians under the Foreign Exchange Management Act (FEMA) from the day he leaves India.
This means, as non-residents, students will be eligible to avail of several facilities which are not available to residents. Once students go abroad, they will be eligible to receive remittances from close relatives in India of up to $200,000 per financial year which can be used towards maintenance or for studies. This is in addition to the remittance limit for fees.
"The applicant parent may apply to his bank where he has an account for more than a year. An application in a specified form along with form A2 must be submitted. Many banks now do insist on form 15CA and 15 CB (Chartered Accountant certificate) as well. If the account is not held for at least a year, the bank may ask for copies of income tax returns of previous years," Dhruva adds.
In addition to the above, students will be able to open NRO and NRE bank accounts and remit balances from those accounts abroad. While NRE account balances are fully repatriable, NRO account balance can be repatriated to the extent of $1 million per financial year. However, the limits for fees and maintenance are quite generous, therefore a very small percentage of students will use the NRO or NRE account repatriation route. "But students must remember that as soon as they become NRIs, they are obligated to convert their existing Indian bank and financial accounts into Non Resident status to be in compliance with the law," Dhruva adds.
Opening a bank account abroad
Try to open a local bank account as soon as possible. You would need to submit certain documents such as your passport, visa as well as proof of your admission to the college.
If your parents are remitting funds to you, it would be best for them to wire it to your local bank account. Moreover, if you are carrying high value drafts and traveller's cheques, you don't want to worry about safe-keeping for long.
Travel insurance
Most universities provide a medical insurance cover for students. However, the date when the coverage begins might not coincide with the date your land in the foreign country. Experts advice that it is best to take travel insurance which covers any incidences that may occur at the time of travel (such as loss of passport, loss of luggage etc) as well as hospitalisation expenses in the foreign country up till the date when the university coverage begins.
Cost: For the US, a coverage of USD 50,000 would cost around Rs 1,500-2,000 for a 30 day term. This would be slightly lower for other countries.
Remitting money back to India
A student can also remit money back to India at any point of time. You can either wire the proceeds to your bank account or parents' bank account in India or you can carry foreign exchange with you when you travel to India. While there is no limit on the amount you can carry with you, if the aggregate value (of cash, cheques, traveller's cheques) exceeds $10,000 and/or the value of foreign currency alone exceeds $5,000, it should be declared to the Customs Authorities at the Airport in the Currency Declaration Form (CDF), on arrival in India.
Tip pay education loan installments
While banks allow the option to start repayment after you complete your course, here is a tip that can help you keep interest costs low. Experts usually recommend students to keep paying the interest portion of the loan so that it does not compound into a large interest outflow.
For instance, let us say you have taken a loan of Rs 15 lakh at an interest rate of 12% per annum. Let us assume that you will start repaying the loan after 2 years. During these two years, the bank will calculate interest on simple interest basis and add it to your loan outstanding. So your interest amount for these two years in this example would work out to Rs 3.6 lakh. That pushes up your loan outstanding to Rs 18.6 lakh on which the EMI when you start repaying would work out to Rs 32,834 over a period of 7 years.
Now instead of letting the interest pile up in the two years, you can repay Rs 15,000 per month (Rs 3.6 lakh divided by 24) for two years. Your EMI would then be calculated on Rs 15 lakh only, that is Rs 26,479; a difference of Rs 6,355 per month.
The best way to schedule EMI payments would be to give a standing instruction to the bank.
Taxation of scholarships
Taxation in India: Vineet Agarwal, Director, KPMG India explains, "Scholarships are not taxed in India. So if you received a scholarship that would not be taxed in India." For taxation in the foreign country, you would need to look at the tax laws of that country. In the US for instance, if you received a scholarship or fellowship, all or part of it may be taxable. Generally, the entire amount is taxable if you are not a candidate for a degree.
If you are a candidate for a degree, the portion of scholarship used for tuition fees, books and supplies required for your course would not be taxable. Any portion used for other purposes such as accommodation and living expenses will be taxable.
Other income tax liabilities
Taxation in India: "It is important to look at residential status in India under the Indian Income Tax Act. Under the Income Tax Act, you are considered as a resident of India if you have been in India for 182 days or more during the financial year (April to March) or you have been in India for 60 days in the financial year and 365 days or more in the last 4 years. You are considered a NRI only if you do not meet these conditions," explains Agarwal. As a student leaving India in August or September of the financial year, it is most likely that you will be an NRI for income tax purposes. As an NRI, you do not have to pay tax on your foreign wages or a stipend in India. If you have any income in India, say in the form of interest from bank accounts, that will be taxed in India and you would have to file a tax return for the same.
Taxation in the foreign country would depend on the tax rules in that country. In the US for instance, as a student on an F1 visa, you are considered to be a non-resident of the US for the first 5 calendar years that you are on this visa. If you are on a J visa, this period is 2 years. "So as a non-resident of the US, you will have to pay taxes in the US only on your income from the US," says Roy Vargis, an Illinois based CPA.
As a student, you may be working part time as a research or teaching assistant or doing any other part time job. Any income that you earn either as wages or as stipend is taxable in the US.
Vargis makes an important point, "In order to claim the status of non-resident in the US, the student must file Form 8843 by April 15th for each of the 5 tax years. If he fails to file this form, he will be treated as a resident and any global income that he may have will be taxed in the US."
10 tips for students heading abroad
How much fees the RBI allows you to remit
The RBI regulation states that 'for studies abroad the estimate received from the institution abroad or $100,000 per academic year, whichever is higher, may be availed of.' So you can freely remit an amount of up to $100,000 per annum from India towards the tuition fees. If your fees exceed $ 100,000 per annum, then you need to take a letter from the foreign college giving the estimate of fees. You can remit the amount mentioned in the letter without taking permission from the Reserve Bank or any other authority.
"All you need to do is to apply at the bank where you have an account. You would need to submit an application along with form A2 and if required the admission letter mentioning fees," explains Rajesh Dhruva, a chartered accountant.
Best way to remit fees
If you have taken a bank loan, the bank remits the fees directly to the university as per documents submitted by you.
If you are paying the fees out of your own sources, you can either wire the funds while you are in India or you can carry a demand draft in the name of the university while you travel. While the difference in cost may not be significant, a demand draft can take 7-10 days to clear while a wire transfer can be done in a couple of days.
Best way to remit regular living expenses
As we saw in point 1 above, the higher of $100,000 or total study fees is allowed to be remitted each academic year.
In addition, a student may also carry with him while travelling, an amount of $10,000 for incidental expenses (that is, expenses other than fees) out of which $3,000 may be carried in the form of foreign currency.
Receiving money from India afterwards
The Reserve Bank of India (RBI) has accorded a special status for students going abroad to study. Students will now be considered Non Resident Indians under the Foreign Exchange Management Act (FEMA) from the day he leaves India.
This means, as non-residents, students will be eligible to avail of several facilities which are not available to residents. Once students go abroad, they will be eligible to receive remittances from close relatives in India of up to $200,000 per financial year which can be used towards maintenance or for studies. This is in addition to the remittance limit for fees.
"The applicant parent may apply to his bank where he has an account for more than a year. An application in a specified form along with form A2 must be submitted. Many banks now do insist on form 15CA and 15 CB (Chartered Accountant certificate) as well. If the account is not held for at least a year, the bank may ask for copies of income tax returns of previous years," Dhruva adds.
In addition to the above, students will be able to open NRO and NRE bank accounts and remit balances from those accounts abroad. While NRE account balances are fully repatriable, NRO account balance can be repatriated to the extent of $1 million per financial year. However, the limits for fees and maintenance are quite generous, therefore a very small percentage of students will use the NRO or NRE account repatriation route. "But students must remember that as soon as they become NRIs, they are obligated to convert their existing Indian bank and financial accounts into Non Resident status to be in compliance with the law," Dhruva adds.
Opening a bank account abroad
Try to open a local bank account as soon as possible. You would need to submit certain documents such as your passport, visa as well as proof of your admission to the college.
If your parents are remitting funds to you, it would be best for them to wire it to your local bank account. Moreover, if you are carrying high value drafts and traveller's cheques, you don't want to worry about safe-keeping for long.
Travel insurance
Most universities provide a medical insurance cover for students. However, the date when the coverage begins might not coincide with the date your land in the foreign country. Experts advice that it is best to take travel insurance which covers any incidences that may occur at the time of travel (such as loss of passport, loss of luggage etc) as well as hospitalisation expenses in the foreign country up till the date when the university coverage begins.
Cost: For the US, a coverage of USD 50,000 would cost around Rs 1,500-2,000 for a 30 day term. This would be slightly lower for other countries.
Remitting money back to India
A student can also remit money back to India at any point of time. You can either wire the proceeds to your bank account or parents' bank account in India or you can carry foreign exchange with you when you travel to India. While there is no limit on the amount you can carry with you, if the aggregate value (of cash, cheques, traveller's cheques) exceeds $10,000 and/or the value of foreign currency alone exceeds $5,000, it should be declared to the Customs Authorities at the Airport in the Currency Declaration Form (CDF), on arrival in India.
Tip pay education loan installments
While banks allow the option to start repayment after you complete your course, here is a tip that can help you keep interest costs low. Experts usually recommend students to keep paying the interest portion of the loan so that it does not compound into a large interest outflow.
For instance, let us say you have taken a loan of Rs 15 lakh at an interest rate of 12% per annum. Let us assume that you will start repaying the loan after 2 years. During these two years, the bank will calculate interest on simple interest basis and add it to your loan outstanding. So your interest amount for these two years in this example would work out to Rs 3.6 lakh. That pushes up your loan outstanding to Rs 18.6 lakh on which the EMI when you start repaying would work out to Rs 32,834 over a period of 7 years.
Now instead of letting the interest pile up in the two years, you can repay Rs 15,000 per month (Rs 3.6 lakh divided by 24) for two years. Your EMI would then be calculated on Rs 15 lakh only, that is Rs 26,479; a difference of Rs 6,355 per month.
The best way to schedule EMI payments would be to give a standing instruction to the bank.
Taxation of scholarships
Taxation in India: Vineet Agarwal, Director, KPMG India explains, "Scholarships are not taxed in India. So if you received a scholarship that would not be taxed in India." For taxation in the foreign country, you would need to look at the tax laws of that country. In the US for instance, if you received a scholarship or fellowship, all or part of it may be taxable. Generally, the entire amount is taxable if you are not a candidate for a degree.
If you are a candidate for a degree, the portion of scholarship used for tuition fees, books and supplies required for your course would not be taxable. Any portion used for other purposes such as accommodation and living expenses will be taxable.
Other income tax liabilities
Taxation in India: "It is important to look at residential status in India under the Indian Income Tax Act. Under the Income Tax Act, you are considered as a resident of India if you have been in India for 182 days or more during the financial year (April to March) or you have been in India for 60 days in the financial year and 365 days or more in the last 4 years. You are considered a NRI only if you do not meet these conditions," explains Agarwal. As a student leaving India in August or September of the financial year, it is most likely that you will be an NRI for income tax purposes. As an NRI, you do not have to pay tax on your foreign wages or a stipend in India. If you have any income in India, say in the form of interest from bank accounts, that will be taxed in India and you would have to file a tax return for the same.
Taxation in the foreign country would depend on the tax rules in that country. In the US for instance, as a student on an F1 visa, you are considered to be a non-resident of the US for the first 5 calendar years that you are on this visa. If you are on a J visa, this period is 2 years. "So as a non-resident of the US, you will have to pay taxes in the US only on your income from the US," says Roy Vargis, an Illinois based CPA.
As a student, you may be working part time as a research or teaching assistant or doing any other part time job. Any income that you earn either as wages or as stipend is taxable in the US.
Vargis makes an important point, "In order to claim the status of non-resident in the US, the student must file Form 8843 by April 15th for each of the 5 tax years. If he fails to file this form, he will be treated as a resident and any global income that he may have will be taxed in the US."
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