The government is likely to announce exemption from tax collected at source (TCS) on overseas credit and debit card spending by an individual of up to Rs 7 lakh per financial year in the interim budget, a senior official said.
An amendment to the Income-Tax Act will be a part of the Finance Bill next year, the official said.
“TCS exemption for the Liberalised Remittance Scheme (LRS) on any payments by an individual using their international debit or credit cards up to Rs 7 lakh, announced during the year, has to be legislated. It’s not in the Income Tax Act currently, it has to be brought under it. Some legislation will be required,” the official told Moneycontrol. “This will be an amendment in the Finance Bill. It has to come into the Income Tax Act as an amendment. It will be part of the Union Budget.”
The government earlier this year brought credit cards within the ambit of LRS to implement 20 percent TCS on this mode of spending. After a widespread backlash, the finance ministry decided to exempt international spending of up to Rs 7 lakh from TCS of 20 percent.
“To avoid any procedural ambiguity, it has been decided that any payments by an individual using their international debit or credit cards up to Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS. Existing beneficial TCS treatment for education and health payments will also continue," the finance ministry said in a statement on May 19.
No other announcements
The exemption announcement is likely to be part of the upcoming vote on account, ahead of the general elections in 2024.
“Since the upcoming budget is a vote-on-account, no other major tax-related announcements are likely,” the official added.
A vote on account enables a government that’s completing its term to fund its expenses for a short period until a full budget is passed.
The government proposed in the Union Budget 2023 to hike TCS for overseas packages to 20 percent from 5 percent. Credit cards had till then been left out of LRS, while debit cards were covered because they were linked to bank accounts. Bank account transactions can be easily monitored and covered by LRS. But this distinction was done away with by a notification from the Ministry of Finance earlier in 2023, bringing credit cards on par for LRS purposes.
The 20 percent TCS on overseas packages was supposed to be applicable from July 1 but was implemented from October 1.
In March 2023, Finance Minister Nirmala Sitharaman said during the Budget session of Parliament that the Reserve Bank of India had been asked to bring credit card payments for foreign tours under the purview of the LRS as such payments escaped TCS.
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