Are you a parent sending money abroad for your child’s education and looking to claim the Tax Collected at Source (TCS) on the funds remitted? The recent introduction of Form 12BAA has simplified this process for parents. Effective from October 2024, this form allows parents to claim TCS credit that was previously only claimable by the student. This new rule brings significant tax benefits and flexibility in managing foreign education expenses. Keep reading to learn how Form 12BAA works and how you can save on taxes by claiming TCS credit.

What is Form 12BAA?

Form 12BAA is a newly introduced tax form by the Central Board of Direct Taxes (CBDT), allowing individuals (like parents or guardians) to claim TCS credits for remittances made abroad, particularly for education expenses. Before this, only the student receiving the funds could claim the TCS credit. Now, with the help of Form 12BAA, parents can transfer the TCS credit to their own Permanent Account Number (PAN) and use it to reduce their tax liability when filing income tax returns.

Who Benefits from Form 12BAA?

Parents and guardians who remit funds abroad, especially for their children’s education, are the primary beneficiaries. If you’re sending more than ₹7 lakh in a financial year for education purposes, a 5% TCS is levied on the amount exceeding ₹7 lakh. Under the new system, parents can claim this TCS credit directly in their tax returns, saving on taxes and making foreign education more affordable.

How Does Form 12BAA Work?

When you remit funds abroad, TCS is collected by the institution facilitating the remittance (usually a bank or financial institution). You can now claim this TCS credit by following these steps:

Obtain a Declaration: You must get a declaration from the institution or bank that collected the TCS, specifying the amount of TCS paid and the PAN of the recipient.

Submit the Declaration: Provide the declaration, along with your details (name, address, PAN), to the tax collection authority.

Claim the TCS Credit: Once the tax authority verifies the details, the TCS credit will be applied to your PAN, allowing you to claim it when filing your tax return.

This process allows parents to offset the Tax Deducted at Source (TDS) and TCS paid on other incomes, such as interest from fixed deposits, dividends, or insurance commissions, further optimizing their tax returns.

Example of TCS Claim for Foreign Education

Suppose Mr. A remits ₹20 lakh to pay for his daughter's tuition fees abroad. A 5% TCS is levied on this remittance, resulting in a ₹1 lakh TCS charge. Under the previous rules, only the daughter could claim this credit in her tax return. However, with the introduction of Form 12BAA, Mr. A can now claim this ₹1 lakh TCS credit in his own income tax return, reducing his taxable income and overall tax liability.

How to Claim TCS Credit Using Form 12BAA?

Claiming TCS credit through Form 12BAA is straightforward. Here are the steps:

Collect Declaration from the Institution: Get a declaration from the bank or institution that collected the TCS, indicating the amount of TCS collected and paid.

Provide Information: The declaration must include:

• Your full name and address as per your PAN details.
• Your PAN number.
• The name and PAN of the person from whom the TCS credit is being claimed (if applicable).
• The amount of TCS collected.
• Purpose of remittance, such as education fees or travel expenses.
• Submit to Tax Collector: Submit the declaration to the tax collector (bank or financial institution), who will verify the details and credit the TCS amount to your PAN.

Claim Credit in Your Tax Return: Once verified, the TCS credit will be applied to your PAN, allowing you to claim it in your tax filing for the financial year.

Key Benefits of Form 12BAA for Parents

Direct Claim for TCS Credit: Parents can now claim the TCS credit, reducing their tax burden.
Simplified Process: No need for the student to file for TCS credit. Parents can directly claim it.
Flexible Tax Planning: Parents can use the TCS credit against their other incomes, such as dividends, interest, or insurance commissions.
Greater Savings: This form offers significant tax savings for parents funding their children’s education abroad.

Frequently Asked Questions (FAQs) on Form 12BAA and TCS Credit

Q1: What is TCS and how does it apply to foreign remittances for education?
A1: TCS stands for Tax Collected at Source. It is a tax applied on certain transactions, such as sending money abroad for education. If the remittance exceeds ₹7 lakh in a financial year, a 5% TCS is applied on the amount exceeding ₹7 lakh.

Q2: Who can claim the TCS credit under Form 12BAA?
A2: Parents, guardians, or anyone remitting funds for a child’s education abroad can claim the TCS credit using Form 12BAA. Previously, only the student could claim this credit.

Q3: Can I claim TCS credit for remittances other than education?
A3: Yes, TCS credit can also be claimed for other remittances, such as travel expenses or property purchases, as long as the necessary declaration is provided.

Q4: What information is required in the declaration for claiming TCS credit?
A4: The declaration must include:

• Your full name and address as per your PAN details.
• Your PAN number.
• The name and PAN of the person claiming the TCS credit.
• The amount of TCS collected and the purpose of the remittance.

Q5: Is Form 12BAA only applicable for parents, or can other family members use it?
A5: While the form is particularly useful for parents, any individual paying TCS on behalf of someone else can use Form 12BAA to claim the credit, provided the correct declaration and documentation are submitted.

Q6: Do I need to submit a separate Form 12BAA for each remittance?
A6: Yes, a separate form must be submitted for each instance where you are claiming TCS credit, along with the corresponding declaration from the tax collector.

Optimize Your Tax Savings with Form 12BAA

With the introduction of Form 12BAA, parents now have the opportunity to simplify their tax filings and claim TCS credit for foreign education expenses. This can lead to substantial tax savings, especially for families financing their children’s education abroad. If you need assistance with filing Form 12BAA or managing TCS credits, reach out to our tax experts at Dinesh Aarjav & Associates. We specialize in NRI tax planning, foreign remittances, and other comprehensive financial services.

Don't miss out on these valuable tax benefits. File your TCS credit with Form 12BAA today!