According to the Liberalised Remittance Scheme, foreign credit card purchases and transfers up to Rs 7 lakh will not be subject to source tax, the finance ministry decided on Wednesday to postpone its earlier plan to include international credit card purchases made outside of India under the Liberalised Remittance Scheme (LRS). This effectively means that as of right now, there would be no Tax Collected at Source (TCS) levied on international credit card expenditures outside of India.
Spending on international credit cards outside of India will attract 20% TCS: How this could impact cardholders?
With this, the TCS levy has returned to the position it had in the Budget for 2023–24, up until the new rates take effect on October 1; however, it will take longer to include international credit card spending outside of India under LRS. According to government sources, the TCS levy is currently, in all actuality, in cold storage.
The Union Finance Ministry said the decision was made following “discussions with various stakeholders, and taking into account comments and suggestions received” and to give banks and card networks enough time to implement necessary IT-based solutions. “The rise in TCS rates, which was scheduled to take effect on July 1, 2023, will now do so on October 1, 2023, with the revision described in (ii) above. Prior rates (before revision by the Finance Act 2023) shall continue to be in effect until September 30, 2023, according to a statement from the ministry.
The barrier of Rs 7 lakh per fiscal year per person will apply to “all categories of LRS payments, through all modes of payment, regardless of the purpose” for TCS. This suggests there won’t be any TCS for remittances under LRS up to Rs 7 lakh. Beyond this Rs 7 lakh barrier, TCS will be charged at a rate of 0.5% (if the remittance is used to finance education), 5% (if it’s used to fund education or medical treatment), and 20% for all other remittances.
The main objective of this year’s Budget decision was to increase the TCS on external movement of money. Nearly 0.8% of the GDP is made up of funds moving outside of India using LRS, which excludes transactions made outside of India using credit cards. The proposal to impose TCS on purchases made with foreign credit cards, which was opposed by a number of groups, has almost completely been shelved at this point.
When purchasing international travel packages, TCS of 5% will be applied on payments up to Rs 7 lakh. From October 1, 20% TCS will be applied to amounts over Rs 7 lakh.
There is currently no threshold for the 5% TCS that applies to LRS and abroad travel package spending.
The government changed sub-section (1G) of section 206C of the Income-tax Act through the Finance Act 2023, proposing a 20% TCS rate increase from 5% for remittance under LRS as well as for purchasing an overseas tour programme package and removing the Rs 7 lakh threshold for levying of TCS on LRS.
All residents, including minors, are permitted to send up to US $250,000 (about Rs 2.06 crore) overseas each year without the RBI’s prior authorisation under LRS. In the notification enabling credit card purchases under LRS, the government claimed the choice had been made after discussion with the Reserve Bank of India (RBI).