Shopping for luxury brands, staying in the best hotels or fee for entry to tourist attractions — the cost of your next trip abroad is set to go high if you prefer making payments with an international credit card. Here’s the reason why.
As part of an amendment to the Foreign Exchange Management (FEM) Rules, 2023, announced on 16 May, there will now be a 20 percent TCS (Tax collected at source) levied on payments made through international credit cards. These transactions will come under Liberalised Remittance Scheme (LRS).
The news received some backlash and as a result, on 19 May, the government clarified that the tax will not be applicable on payments up to INR 7 lakh.
What is this TCS rule change?
The e-Gazette notification dated 16th May 2023 omits Rule 7 of the FEM(CAT) Rules, 2000. Here are the Frequently Asked Questions #FAQs w.r.t. the Liberalised Remittance Scheme . @RBI (2/2)👇 pic.twitter.com/PGfiPX213q
— Ministry of Finance (@FinMinIndia) May 18, 2023
The Reserve Bank of India, along with the central government announced that all foreign currency payments made using an international credit card, specifically, when that person is abroad will now come under LRS and thus will be applicable for 20 percent TCS, which was not mentioned in the FEM earlier. The transactions made from 1 July 2023, will be counted under this new scheme.
Originally, the rule was only for transactions made using international debit cards.
What is LRS?
The Finance Ministry took to Twitter and shared that LRS simply states, “All resident individuals are allowed to freely remit USD 2,50,000 per financial year for any permissible current or capital account transaction or combination of both.”
Tax on international credit cards — what it means for travellers?
Clarification regarding applicability of Tax Collection at Source to small Debit/Credit Transactions under LRS
Read more ➡️ https://t.co/TueoKvVb8W
(1/4) pic.twitter.com/QksyU3EXuK— Ministry of Finance (@FinMinIndia) May 19, 2023
As people were unhappy with the omission of the rule, the Finance Ministry, to avoid any confusion, released a clarification confirming that the tax will not be imposed on travellers spending less than INR 7 lakh on their international credit or debit cards, when they are abroad, in one financial year, meaning these transactions will not be counted under LRS.
While TCS may apply to certain transactions, here’s a helpful list of payments where it’s not applicable.#TCSExplained #TCS #MyGov #CreditCard pic.twitter.com/8xhbep1m3i
— MyGovIndia (@mygovindia) May 20, 2023
Apart from this, there are certain transactions on which the TCS will not apply. When payments are made to purchase goods and services from India on your card, for example booking an international tour from an Indian website like MakeMyTrip and paying in INR will not be considered a part of LRS. Moreover, transactions made for educational and medical requirements as well as company/business trips will not be a part of the rule change.
Another thing to note is that TCS is refundable and it can be claimed while filing your Income Tax Return (ITR).
As a tourist in a foreign country, you will now have to be conscious when making payments from your credit cards. Keep an eye on your bank statements to know when you cross the INR 7 lakh limit.
Hero and Feature Image: Courtesy Stephen Phillips – Hostreviews.co.uk/Unsplash
This story first appeared on Travel+Leisure India.
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