The government’s flip flop on TCS (tax collected at source) on international credit card transactions appears to have caused a good deal of confusion. It was first introduced on May 16 this year and then withdrawn on June 28.
The Finance Ministry’s June 28 announcement has made it clear that no TCS will apply on international transactions via credit cards when the card user is outside India. There is no clarity, however, on whether international credit card transactions made from India will attract TCS.
Back and forth
The Finance Ministry first brought international credit card transactions under the Reserve Bank of India’s liberalized remittance scheme (LRS) on May 16, levying TCS on such transactions with immediate effect. Then on May 19, the government announced that international transactions of up to Rs 7 lakh per financial year via debit and credit cards would be exempt from TCS. Finally, on June 28, the government reversed its May 16 decision and declared that credit card transactions would not be counted under the LRS and therefore, would be exempt from TCS.
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The current confusion appears to stem from the language used both in the FAQs issued on May 18, and the press release issued on June 28 by the Finance Ministry on this matter. Both make a reference to ‘use of international credit cards when abroad / while being overseas’.
According to a tweet from @mygovindia on May 20, no TCS applies on ‘payments for purchase of foreign goods and services from India’.
If we go by these two pieces of information, international credit card transactions from India and those made outside India appear to be treated differently when it comes to TCS.
TCS or not – experts differ
So, where do we stand today? According to Sumanta Mandal, founder of TechnoFino, a platform that reviews debit and credit cards, it is clear no TCS will apply on international credit card transactions whether done from India or overseas. The May 16 government notification amended the Foreign Exchange Management Rules, 2000, by deleting Rule 7 from it. On June 28, this decision was reversed – in short, it was decided to reinstate Rule 7.
Rule 7 exempts credit card transactions from LRS, and so from TCS. This has been formally notified in the Gazette of India, too. “This rule makes a reference to ‘credit card transactions while outside India’ because at that time online international credit card transactions (payments to foreign websites from India) were not that common. But it’s meant to cover all international credit card transactions whether from India or overseas,” says Mandal.
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He points out that when you transact with a merchant (say, Amazon.com) that is registered outside India, then whether the transaction happens from India or overseas, it is treated as an outside India transaction.
Ankit Jain, Partner, Ved Jain & Associates has a similar view. “As per the government’s press release, due to technical challenges faced by banks, the plan to include foreign currency transactions made through credit cards under LRS has been discarded for now. Hence, no TCS would apply on them. This includes purchase of goods on global e-commerce websites, or subscriptions to online services, or booking of international flights or hotels,” he says.
A recent communication sent by SBI Cards & Payment Services to its customers says, “TCS will not be applicable on spends made in foreign currency through credit cards for now.” This communication can be interpreted to mean that TCS does not apply on any such transactions irrespective of their location.
Also Read | Holidays booked with foreign tour operators escape 20% TCS, but Indian tour operators must collect this tax
Gautam Nayak, Partner, CNK & Associates LLP, however, holds a different view. According to him, international card transactions done from India are part of LRS. “There is no TCS on LRS up to a limit of Rs 7 lakh for now, including on such transactions,” says Nayak. According to one other tax expert who did not wish to be quoted, TCS will apply on international credit card transactions when done from India.
Given that the communication from the government in the form of press releases, FAQs on Twitter and notifications in the Gazette of India are being interpreted differently, some clarification from the government on this matter would be helpful.
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