Will the Budget bring credit card international spends under TCS?

Foreign spends on education (when funded without a loan) and medical expenses attract TCS of 5 percent.

Last year, the government’s flip-flop on tax collected at source, or TCS, on credit card international spends finally ended on a positive note. Credit cardholders were spared the TCS axe in the end.

It was on May 16, 2023 that the government took credit cardholders by surprise by bringing international spends via credit cards under TCS. Then, on May 19, the government introduced the Rs 7-lakh spend threshold – TCS would apply only once this limit was crossed.

Eventually on June 28, credit card international spends were again taken outside the ambit of TCS (see graphic). This was to allow banks to put in place the requisite infrastructure to keep a tab on such spends. No deadline was set for when they would be brought under TCS.

Will Budget 2024 make any announcement on this matter? According to credit card experts we spoke with, this seems unlikely.

How much TCS on foreign spends

Today, while international transactions via debit cards, forex cards or any other payment mode attract TCS once they cross the Rs 7-lakh per person per financial year limit, those via credit cards are exempt. The TCS rate varies depending on the purpose of foreign spending.

MC Exclusive: TCS exemption on Rs 7 lakh international card spend likely in interim Budget

So for example, foreign spends on education (when funded without a loan) and medical expenses attract TCS of five percent, those for other purposes such as foreign investments (stocks, real estate etc.) and leisure travel etc. face 20 percent.

With credit cards remaining exempt from TCS, other payment modes such as forex cards and debit cards are at a disadvantage in situations where an individual’s spends cross the Rs 7 lakh yearly threshold. That said, a few experts we spoke said that the Rs 7 lakh per person per year threshold is a sufficiently high limit for most people with foreign expenses.

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TCS on credit cards or not

So will Budget 2024 bring credit cards under the TCS net?

Sumanta Mandal, founder of TechnoFino, a platform that reviews debit and credit cards, says that it is unlikely that the government will make any changes to the current TCS rules. It's also unlikely that the government will bring international spends done using a credit card under LRS (Liberalised Remittance Scheme) as banks don't have the required system ready.

Ankur Mittal, co-founder of Cardinsider, a credit card comparison website, offers a similar view. He says, “TCS on credit cards was put on hold. I don’t think this will be implemented.” Mittal further adds, “Credit card bill payments exceeding Rs 10 lakh in total per financial year are already being reported by financial institutions and get reflected in a taxpayer’s form 26 AS (statement showing TCS and TDS deductions).”

Live Coverage of the Interim Budget 2024

Simply put, he means the TCS on credit card international transactions may not be necessary.

According to Vishwas Panjiar, partner at Nangia Andersen LLP, the decision to include credit card transactions is not necessarily dependent on the upcoming budget and can be implemented anytime by the government by way of a circular/notification.