20% TCS on International Credit Card Expenses

There are times when you need to remit money abroad.

Whether it be your child’s college fees abroad or a medical expense etc., With the use of various payment modes, you can make international transactions.

However, there is a limit that is up to USD $2,50,000 per financial year for you in India for any permissible current or capital account international transaction or a combination of both.

This is as per the Liberalised Remittance Scheme(LRS) which allows you to remit funds outside India in a simple and easy way.

Recently, the government has made an important update to the Liberalised Remittance Scheme.

Now, credit card spending abroad will attract 20% TCS on aggregate international spending with effect from July 1 2023.

Let’s understand the latest modification in detail so that you make the smart decisions and take actions accordingly.

Latest Update: International Credit Card Transactions Now Subject to TCS

Previously, when people used their international credit cards for transactions outside the country, it didn’t count towards the total amount they were allowed to send abroad under the liberalised remittance scheme (LRS).

In simple words, the limit to remit USD $2,50,000 per financial year using credit cards did not apply.

However, now all international credit card transactions made overseas will be considered within the LRS limit and LRS rules and regulations will apply.

As a result, a taxation rule under LRS was modified. Tax collection at source (TCS) at the rate of 20% is introduced over such international transactions.

Although, there is also a relaxation from the government’s side.

The government has made it clear that payments made by individuals using their international debit or credit cards, up to a total of Rs 7 lakh per financial year, will not be counted towards the LRS limits.

This means the foreign transactions of up to Rs. 7 Lakhs will not be subject to the 20% TCS tax.

TCS on Medical & Education International Spend

On educational expenses up to Rs 7 lakhs, you get TCS Exemption. However, If the funds are being provided through a loan, TCS charges of 0.5% will be applicable for transactions exceeding this threshold. But if you are self-financing, the TCS rate is 5% on education expenses exceeding Rs 7 lakh.

TCS on Foreign Travel & Tourism

As per the budget 2023-24, the new TCS Rate on Foreign Travel & Tourism is now 20%. Starting from July 1st, 2023, the increased TCS rate of 20% will be applicable to foreign travel, while currently, TCS is levied at a rate of 5% on overseas remittances and the sale of foreign tour packages.

Important Note: The threshold limit of Rs. 7 Lakhs does not apply here. It means if you remit less than Rs. 7 Lakhs for foreign travel & tourism, you still have to pay 20% TCS.

Read more about these changes at: TCS increased on international trips and studying abroad

TCS on International Online Purchase & Subscriptions

The online Purchase & Subscriptions by businesses or individuals of more than Rs. Seven Lakhs per financial year will attract 20% TCS whichever payment mode you will use. Thus, those who avoided ITR Filing, now will have to do it in order to claim TCS Paid.

Key things to note while remitting more than Rs. 7 Lakhs using Credit Cards

For foreign remittances towards education and medical treatment, you have to pay 5% TCS.
Foreign remittances for foreign tourism covered under the Liberalised Remittance Scheme (LRS), the TCS to pay will be at the rate of 20%.
Starting from July 1, every penny spent more than Rs. 7 Lakhs for international online purchase & subscriptions will attract a tax of 20%.

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Why has there been a change regarding the use of International Credit Cards?

In the past, payments made with debit cards were considered under the Liberalised Remittance Scheme (LRS).

However, credit card payments were exempted from being counted towards the LRS limit.

This caused some individuals to exceed the LRS limit unknowingly.

To ensure fairness and consistency in how foreign exchange is used and to accurately track total expenditure, the distinction between debit cards and credit cards needed to be removed.

Is it permissible to use the Liberalised Remittance Scheme (LRS) for business visits by employees?

No, the Liberalised Remittance Scheme (LRS) does not cover business visits of employees.

If an employer sends an employee on a business visit and the employee is responsible for bearing the expenses.

Furthermore, those expenses would be considered as residual current account transactions and would not fall under the purview of LRS.

Who will pay & deposit TCS on International Card Payments?

The authorised dealer, the issuing bank of the credit card, will be responsible for collecting TCS.

They will collect 20% extra from the cardholder and deposit it as TCS.

This amount can be used to offset any income tax owed for that financial year.

Can you claim TCS paid under the Liberaised Remittance Scheme?

Yes, you can claim a refund for the deducted TCS using ITR Filing & using Form 26AS.

Wish to claim TCS paid previously?

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Other Important information related to Liberalised Remittance Scheme

RBI introduced the Liberalised Remittance Scheme (LRS) to ease foreign exchange transactions.
LRS enables Indian residents to transfer up to USD 250,000 annually outside India.
Eligibility for LRS includes individuals, corporates, partnership firms, HUFs, and even minors with guardian consent given that their guardian signs Form A2.
LRS offers several advantages like diversifying investment portfolio, purchasing foreign goods, sending money for education or medical purposes to family abroad, etc.

Source: Tweet by Ministry of Finance