New rule for International Credit Card users: Spending in foreign currency through international credit cards will be covered under the Liberalized Remittance Scheme (LRS) of the RBI. On May 16, the Finance Ministry notified revised rules under the Foreign Exchange Management Act (FEMA), which brought credit card spends outside India under LRS. Earlier, the use of International Credit Cards (ICC) for making payments to meet expenses during travel outside India was not included in the LRS limit. Debit cards, forex cards and bank transfers only included.
The government removed Rule 7 of the Foreign Exchange Management Rules, 2000
As per the notification, the Ministry of Finance, in consultation with RBI, has omitted Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, thus effectively including foreign exchange expenditure through international credit cards under LRS. . ‘Rule 7’ exempts overseas use of International Credit Cards from ‘Rule 5’, which requires prior approval from the Reserve Bank of India.
Technically, a TCS levy of 5% will be applicable on such transactions till July 1 (except in sectors related to medical and education), which will increase to 20% after July 1.
“It’s big. Removing Rule 7 changes the game. Every international credit card transactions, from today onwards, created by an individual => will be under LRS limit. Means 5% TCS till 1st July and 20% tax collected at source thereafter. (may be adjusted against other taxes),” tweeted Deepak Shenoy, founder and CEO of Capital Mind.
Can taxpayers claim refund of ‘20% TCS’?
Archit Gupta, Founder and CEO, Clear, said that with the application of TCS on credit card transactions on foreign lands, individuals would see a higher bill on their cards, with money potentially blocked for several months until returns are filed. goes to/refund is not claimed and already taxed. The aggregate is adjusted. Credit card issuing banks will have established procedures for compliance and their burden will increase as a large number of Indians travel abroad and credit cards are commonly used for payments.
Taxpayers may now have to keep track of these TCS entries in their Form 26AS, some of them who incur expenses on behalf of their employers may be reluctant to bear the expenses and may prefer to opt for other modes of payment For those where there is no direct TCS implication, added Gupta.
20% TCS trending on social media
The government’s decision to impose 20% TCS on international credit card spending has caught the attention of Twitterati as “20% TCS” was one of the top trending topics on social media on Thursday morning.
lrs scheme
Under the LRS scheme, Indian residents are allowed to remit up to $250,000 per year without prior approval from the Reserve Bank of India.
What is TCS?
Banks deduct Tax Collected at Source (TCS) on foreign remittances, so, basically, TCS is collected by the seller at the point of sale
@Ravisutanjani in a series of tweets pointed out how your next foreign trip is going to get costlier, 20% TCS will be calculated.
Priya has a credit card with a credit limit of 4 million. She went to Singapore on an international vacation. He used his credit card for all the transactions abroad. its total cost is called 2 lakhs. Now 20% TCS- 40,000. total amount will come 2 lakh 40,000. Your bank may also charge additional forex markup, GST when you use the credit card abroad)
So, basically, Priya’s credit card issuing bank will credit 20% TCS against her PAN. Priya can claim this TCS while filing income tax return.
What is the currently applicable TCS rate?
Union Budget 2023-24 TCS rates on foreign tour packages and remittances under LRS (other than for education and medical purposes) have been increased to 20 per cent from the present 5 per cent.
What are the things Indians should now keep in mind while using International Credit Cards in foreign lands?
Effective July 2023, Indian Passengers Booking international travel The 20% Tax Collected at Source (TCS) outside India will face a significant change. This tax will be collected by authorized banks or travel agents on international travel tour bookings and now credit cards
“It is important for Indian travelers to keep in mind this additional financial obligation while paying for foreign travel which can increase the overall expenditure for their travel. However, travelers can claim TCS credit while filing their tax returns, which means the net effect on their travel cost will not change,” said Rickant Pitti, Co-Founder, EaseMyTrip.
According to Amit Gupta, MD, SAG Infotech, the government believes that implementing this TCS will help tune and reveal high-cost forex transactions and ensure that people pay their fair share of taxes. By levying tax at the time of transaction, it will discourage tax evasion and encourage compliance.
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