Budget 2024: Government may bring overseas credit card spend above Rs 7 lakh under 20% TCS

Data from RBI revealed that outward remittances under LRS reached $31.73 billion in 2023-24.

To curb large foreign exchange outflows, the Union Budget on July 23 may bring overseas credit card spending above Rs 7 lakh under the Liberalised Remittance Scheme (LRS). The credit card spend thus is likely to be brought under 20 percent tax collected at source (TCS) in the upcoming Union Budget for FY25, a senior government official said.

Under the Reserve Bank of India’s (RBI) LRS scheme, an Indian resident can transfer funds of up to USD 250,000 in a financial year outside India.

Follow our LIVE Union Budget 2024 blog for all the key updates and in-depth analysis

“Bringing credit card spending under LRS is of the government’s focus. There have been discussions in the Finance Ministry on it. The objective is to discourage excessive remittances under the LRS,” the official said.

An amendment to the Income-Tax Act to this effect is likely to be a part of the Finance Bill in the Union Budget, another government official told Moneycontrol.

Data from the Reserve Bank of India (RBI) revealed that outward remittances under LRS reached $31.73 billion in 2023-24, a 16.91 percent rise from $27.14 billion in the previous year.

Finance Minister Nirmala Sitharaman's interim budget for 2024, presented in February, did not include provisions to bring international credit card transactions under the Tax Collected at Source (TCS) framework. However, the upcoming Union Budget is anticipated to address this omission, aiming to align credit card spends with other payment modes under the Liberalised Remittance Scheme (LRS). Notably, favorable TCS treatment for education and health expenditures abroad is expected to persist, with these categories taxed at a fixed rate of 5 percent, even for amounts exceeding Rs 7 lakhs.

Currently, expenditures using debit cards, forex cards, or other payment methods incur a 20 percent TCS once they surpass the Rs 7 lakh per person per financial year threshold. In contrast, credit card transactions have been exempt from TCS under LRS rules, as they were initially excluded while debit cards were covered due to their linkage with bank accounts. This exemption allowed banks time to establish necessary infrastructure for monitoring international credit card spends.

The government had previously announced an increase in TCS rates from 5 percent to 20 percent in Budget 2023 for foreign remittances under the RBI's LRS and purchases of overseas tour packages.