Travellers who wish to use their credit cards for booking international holiday packages will face significant implications due to recent announcements by the Ministry of Finance. Previously, credit card spending overseas was not considered part of the Liberalised Remittance Scheme (LRS), which set limits on foreign exchange remittances. However, starting from May 16, this has changed.
TCS to be Implemented Starting July 1
International credit card expenditures now fall under the LRS limits, and a 20% tax collection at source (TCS) will be implemented from July 1 if the expenses abroad exceed Rs 7 lakh ($8,445). Until June 30, a 5% TCS will apply beyond the Rs 7 lakh threshold. The government’s objective is to combat LRS limit evasion through the use of credit cards.
Following are some of the FAQs around the applicability of TCS on different types of international transactions:
Is there any TCS on debit cards, foreign currency, and forex cards?
Yes, international expenditures made through debit cards, foreign currency, and forex cards fall under the Reserve Bank of India’s LRS. This scheme allows Indian residents to remit up to $250,000 overseas per financial year without prior approval.
Since May 16, 2023, international credit card spends have also been included under LRS. For debit and credit cards, a 5% TCS applies to foreign currency remittances or expenditures (excluding education and medical purposes) beyond Rs 7 lakh per year until June 30.
If I purchase a credit card abroad, will TCS apply?
According to Sumanta Mandal, founder of TechnoFino, if you obtain a credit card from a foreign bank outside India, TCS will not apply. However, eligibility criteria must be met, and most US banks require a checking account, an Indian passport, and a US-based physical address in your name. Global issuers like American Express and Citibank may issue credit cards based on your credit score in your home country. If you have income in that country and use it to pay your credit card bills, it will not fall under LRS and will not attract TCS. TCS will only apply if you remit income from India to pay the credit card bill.
Does TCS apply to transactions made on foreign e-commerce websites or subscriptions to foreign publications while in India?
Yes, TCS provisions apply if you make online payments in dollars for shopping on foreign e-commerce websites or subscribing to international magazines and make payments in pounds using your credit card. However, since the majority of users will not exceed the Rs 7 lakh per year threshold, a 20% TCS is unlikely to apply to most subscriptions.
The method for collecting tax on international credit card transactions is still awaited, and it will be the responsibility of the card-issuing bank. To claim TCS credits while filing income tax returns, taxpayers will need a TCS certificate provided by the collector, which can be used to offset tax liabilities or request a refund if the credits exceed the tax liability.
