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The Indian govt has brought credit cards under the Liberalised Remittance Scheme (LRS) from July 1, 2023.
Even a dollar of foreign spending will attract a 20% tax.
So what does "20% TCS" really mean and how does it impact you?
Here's what you need to know
What has changed?
Credit card spending outside India has now been brought under the ambit of the Liberalised Remittance Scheme (LRS) — under which all resident individuals, including minors, can remit up to US $2,50,000 (approx ₹2.06 cr) abroad per year without prior approval from the Reserve Bank of India (RBI).
Bringing credit card transactions under LRS enables the levy of a higher rate of Tax Collected at Source (TCS), as announced in the Budget for 2023-24.
Till June 30, a TCS of 5% will be levied on such spending on overseas tour packages (without threshold) or any other category (beyond the threshold of ₹7 lahks), except for medical and educational purposes.
But, from July 1st, the money you spend outside India using your credit card will be taxed at a 20% TCS rate.
So, for example, if you spend $100 to buy something in the USA, you'll be charged $120, and the extra $20 will be collected by your credit card bank and sent to the Indian govt, which is called tax collected at source.
The major concern
While taxpayers can claim refunds on the TCS levy at the time of filing their returns, this could result in their funds being locked until the refund is initiated by the tax department.
The govt's decision raised concerns and evoked sharp reactions from the stakeholders.
The damage control by the Govt
The govt on Friday announced that individuals making payments using their international debit or credit cards will get relaxation from 20% TCS if the threshold limit of ₹7 lakhs per financial year is not breached.
Furthermore, the existing beneficial TCS treatment for education and health payments will be maintained.
What changed with new rules?
The new tax will also apply to foreign currency transactions done online to foreign merchants.
If you make online purchases from international websites and pay with your credit card in a foreign currency such as US dollars or euros, those transactions are classified as credit card transactions in foreign currency and will attract 20% TCS if the amount exceeds ₹7 lakhs.
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