Govt looks into banks' worries over TCS on foreign remittances

For representational purpose.

The government is reportedly looking into the issues related to the implementation of a rule that directs 20 percent tax collected at source (TCS) on foreign remittances.

“The decision on extending the July 1 deadline (for the implementation of the new rule) has not been taken yet. However, it cannot be completely ruled out amid procedural challenges,” Business Standard quoted a government source as saying.

Several banks have sought clarity from the finance ministry before the new rule on overseas credit card spends comes into force. According to bankers, there is confusion on many fronts including what if the amount is remitted using several cards and bank accounts.

Also Read: How 20% TCS on foreign remittances under LRS can impact overseas spend of Indians

“We have sought some clarification on this issue. We are yet to get any reply,” a senior executive of a large bank told the business daily, adding that if the transaction is done via a debit card, the bank has access to the account from which the tax can be deducted but what if a credit card customer cancels the transaction after making it.

Moneycontrol couldn't independently verify the information.

Also Read: How tax on foreign tour spends on credit cards will affect your holidays

In May, the finance ministry said that international credit card spends abroad would be covered under the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India (RBI). Under LRS, a person can send a maximum of $250,00 per annum per annum without informing the RBI.

In the Budget 2023-24, the finance ministry increased the TCS rate to 20 percent for overseas tour packages and funds remitted under the LRS (other than that for education and medical purposes).

Later, the ministry said that no tax would be charged on overseas spending of up to Rs 7 lakh in a year using debit or credit cards. Such transactions would be exempt from the $250,000 per annum LRS limits, the government said. However, if such expenses are incurred for medical or educational purposes, the TCS would be levied at 5 percent.

Recently, the Department of Economic Affairs met RBI officials in Mumbai and reviewed the rule and the complexities around it. Tax experts say if the government extends the deadline, it would issue a circular for the same, clarifying the possible timeframe.

Bankers say one can use credit cards from different banks to make the payment and in that scenario, no bank will know how much was spent from other credit cards.

Reports have claimed that the department was planning a proposal under which credit-card holders will have to file a declaration with the issuer entity within a stipulated time, mentioning the nature of expenses in foreign currency for the purpose of TCS levy.