Overseas credit card spending won't attract TCS, finmin defers rate hike for 3 months

Union Finance Minister Nirmala Sitharaman.

Overseas spending using credit cards would not attract tax collected at source (TCS) under the Liberalised Remittance Scheme (LRS), irrespective of the amount of expenditure. Plus, overseas transfers up to Rs 7 lakh under the scheme will also not face the levy, according to the finance ministry.

The Centre has indefinitely put off the implementation of the May 16 notification that had brought credit cards within the ambit of the remittance scheme. It also deferred by three months implementation of new hiked rates of TCS to October 1.

TCS will continue to apply at the rate of 5 percent for the first Rs 7 lakh per individual in a financial year for purchase of foreign tour programme packages. The hiked rate of 20 percent will apply on expenditure above this threshold.

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

“To give adequate time to banks and card networks to put in place requisite IT-based solutions, the government has decided to postpone its implementation,” the finance ministry mentioned in a statement.

Earlier, a few banks had flagged concerns with the finance ministry regarding operational issues in implementing the new rule from July 1.

“If a person uses credit card while in India for overseas transactions, it would count under the LRS and attract TCS beyond a spend of Rs 7 lakh in a year,” the finance ministry said.

Banks have raised concerns with multiple rates, instead of a flat rate which makes it easier to collect tax at source. There was lack of clarity over multiple TCS rates and up to Rs 7 lakh exemption granted on international debit and credit card spends.

The Centre will bring in requisite legislative amendments in this regard in due course. The finance ministry said it would issue a fresh set of FAQs and make the necessary legal changes soon.

The Budget 2023 raised the TCS on foreign remittance through LRS to 20 percent from 5 percent, except in certain cases.