Are you someone who regularly visits foreign countries for business trips or vacations? If yes, then your trips are going to get more expensive as the Indian Government announced a 20% TCS to be charged on all your international credit card transactions. The Government amended the Foreign Exchange Management Act (FEMA) rules on 16th May 2023, which brings international credit card spends under the LRS or Liberalised Remittance Scheme.
The new amended rules will apply from 1st July 2023. Until then, 5% TCS will be charged and from 1st July onwards, the 20% TCS will be charged on all credit card international transactions. The new rules are sure to put a lot of compliance burden on consumers as well as card issuers.
What are the New Rules?
International credit card spends will now be under the LRS and a higher TCS will be charged on them as announced during the 2023-24 budget. A 5% TCS will be charged until 30th June on spends like overseas tour packages and other categories, which will rise to 20% after 1st July. Expenses related to education and medical purposes are not included in this.
Until now, the use of international credit cards to make transactions during foreign travel were not included under the LRS. The Foreign Exchange Management Act’s Rule 7 excluded international credit card spends from LRS, but the Rule 7 is now omitted under the new regulations.
For example, you visit Singapore for a vacation and spend Rs. 3 Lakhs with your credit card during your time there. A 20% TCS will be charged on the spend, and you will be billed a total of Rs 3,60,000 for your transactions.
Finance Ministry clarified that the 20% TCS charge will apply to international private visits, donations, gifts, etc. but not on purchasing foreign services and goods like newspaper or magazine subscriptions, online streaming services, etc.
TCS will be Deposited Against Users’ PAN
Tax collected at source or TCS is a directly-levied tax and has to be paid upfront when the transaction is made. Whenever international credit card spends are made, the card issuer bank has to deposit 20% TCS against the user’s PAN. The TCS will be reflected in the credit card statement and users can adjust this TCS when they file their income tax returns.
Exemption on Medical and Educational Spends
The new 20% TCS charge will not be applicable on medical and educational spends and will apply to all other remittances under other categories. For educational purposes, all remittances of more than Rs. 7 Lakhs through loans will be charged a 0.5% TCS. If no loan was taken, then 5% TCS will be charged on educational spends above Rs. 7 Lakhs.
The New Rules are Aimed at Tracking Foreign Transactions and Boosting Domestic Tourism
The Government put international credit card spends under LRS and introduced a 20% TCS in order to track foreign transactions made by Indian citizens and promote domestic tourism. More and more Indians are traveling abroad which increased international spending and the Government wanted to reduce this.
Moreover, the domestic tourism and travel industry also pushed for an increase in tax on foreign travel and foreign spends so that more Indians would turn to domestic travel. Apart from the TCS charge, international credit card spends now also come under the $250,000 LRS limit. Any international transaction over this limit will need prior approval from the Reserve Bank of India.
This is a big step taken by the Government which takes away all exemptions that were on international credit card spends. As stated above, a 5% TCS will be charged until 1st July and after that a 20% TCS will be charged on all international credit card spends.
The charges are also applicable on foreign tour packages through agents but medical and educational spends are exempted from the TCS. The new rules will surely help the government track international spends made by Indian citizens and also improve the domestic tourism in the country. Let us know your thoughts regarding these new rules amended by the Government.