Travellers wanting to swipe their credit cards to book a foreign holiday package will be badly hit by recent announcements from the Ministry of Finance. Until May 15, credit card spending overseas was not considered part of the Liberalised Remittance Scheme (LRS), which sets limits on how much foreign exchange can be remitted overseas. This changed from May 16.
International credit card spends now come under the LRS limit and a 20 percent tax collection at source (TCS) will kick in from July 1 if the expenses abroad exceed Rs 7 lakh ($8,445). Until June 30, TCS at the rate of 5 percent beyond the threshold of Rs 7 lakh will apply. The move is aimed at curbing evasion of the LRS limit via the use of credit cards, according to the government.
Here are answers to some of the most commonly asked questions on the applicability of TCS on various types of international transactions.
Does TCS apply on debit cards, foreign currency and forex cards?
Yes, international spends via debit cards, foreign currency and forex cards come under the Reserve Bank of India’s LRS, which permits Indian residents to remit up to $250,000 overseas per financial year without prior approval. From May 16, 2023, international spends via credit cards have been included under LRS.
Foreign currency remittances or spends (excluding those for education and medical purposes) beyond Rs 7 lakh a year using debit and credit cards, forex cards, foreign currency or other means will attract 5 percent TCS until June 30.
From July 1, 20 percent of TCS will be collected. In the case of debit or credit cards, TCS will apply only beyond the Rs 7 lakh limit. There is no minimum threshold specified for forex cards and foreign currency – this is an area that needs clarification.
If you have already planned your holiday and booked tickets, you can avoid TCS this year by buying your foreign currency in advance. Sudarshan Motwani, founder of BookmyForex.com, said individuals can buy foreign exchange 60 days before the date of travel. For travel up to August 30, you can buy foreign exchange in advance before June 30, the day before the 20 percent TCS rule comes into force.
Also read: Finmin's Rs 7-lakh relief to taxing foreign spends on credit cards can't resolve TCS crisis
Will TCS come into play if payment for an overseas tour package is made in rupees through an Indian tour operator?
On the purchase of overseas tour packages, there is currently a TCS of 5 percent levied. From July 1, this will be hiked to 20 percent.
Gautam Nayak, a partner at CNK & Associates, said TCS is applicable whether payment for the tour package is made in rupees or not.
“The onus of collecting TCS will be entirely on the customer’s card-issuing bank at the time of payment through the card, irrespective of the point of purchase – whether customers book or pay through domestic travel agents, overseas travel agents or even directly to the eventual overseas service provider,” said Mohit Kabra, CFO of MakeMyTrip.
Also read | TCS increase and Go First challenges impact travel industry, domestic demand strong: Thomas Cook
If I go abroad and sign up for a credit card there, will TCS apply?
According to Sumanta Mandal, founder of TechnoFino, if you sign up for a credit card from a foreign bank outside of India, no TCS will apply. But getting a credit card means you meet certain eligibility criteria. Mandal said most banks in the US require a ‘checking account’ (similar to a current account in India), your Indian passport and a US-based physical address in your name.
Mandal said global issuers such as American Express and Citibank may issue you a credit card in a foreign country based on your credit score in your home country. If you have income in that country and use it to pay your credit card bills, it will not come under LRS and will not attract TCS. If you remit income from India to pay this credit card bill, TCS will apply on that remittance.
Is TCS applicable on foreign transactions through corporate credit cards issued to an employee?
A credit card issued against a company's PAN to an employee will not attract TCS for a transaction overseas.
Will shopping on foreign e-commerce websites or subscriptions to foreign publications attract TCS even though they are executed while in India?
Yes, TCS provisions apply if you pay online in dollars for shopping on a foreign e-commerce website or subscribing to an international magazine and making payment in pounds using your credit card.
“You have to pay 20 percent TCS if it breaches the Rs 7 lakh threshold that is now applicable. So, most users will escape TCS as the subscriptions will not cost more than Rs 7 lakh per year,” said Mandal.
Buying a smartwatch from a foreign e-commerce website and subscribing to a foreign periodical on a UK website using a credit card from India will attract 20 percent TCS if it breaches the Rs 7 lakh threshold.
How is tax on international credit cards transactions likely to be collected?
Details on this are awaited. The card-issuing bank will be responsible for TCS.
Neeraj Agarwala, director of Nangia Andersen India, said, "The TCS could possibly reflect in your credit card statement as an additional charge on your international spends (which are shown under a separate head from domestic credit card spends)."
Also read: How will tax on foreign tour spends on credit cards affect your holiday. The complete guide.
What TCS rules are applicable to outward remittances for investments in foreign stocks, bonds, and real estate?
If you have invested Rs 7 lakh under LRS in foreign stocks, bonds, or real estate in a financial year, TCS at 5 percent will be applicable till June 30. From July 1, TCS of 20 percent will be applicable and you will no longer have the comfort of the Rs 7 lakh threshold. All your investments will attract a TCS of 20 percent.
If you invest Rs 10 lakh in foreign stocks or real estate after July 1, Rs 2 lakh will be the TCS.
What are the implications on remittances for overseas education funded through a loan or own funds after July 1?
There is no change in the TCS rate for overseas education from July 1. TCS at 0.5 percent will be applicable on the amount exceeding Rs 7 lakh in a financial year under LRS if the amount remitted is obtained out of a loan from a financial institution. If the amount remitted under LRS in a financial year is Rs 10 lakh for overseas education, TCS at 0.5 percent will be applicable on Rs 3 lakh (Rs 10 lakh less Rs 7 lakh) and the tax collected will be Rs 1,500.
If the amount remitted for overseas education is from one’s own funds, 5 percent TCS will apply on the amount exceeding Rs 7 lakh in a financial year.
So, if the amount remitted under LRS in a financial year is Rs 15 lakh for pursuing overseas education from own funds, TCS at 5 percent will be applicable on Rs 8 lakh (Rs 15 lakh less Rs 7 lakh) and tax collected will be Rs 40,000.
I am travelling abroad In July for medical treatment. What is the tax implication on remittances associated with medical treatment abroad?
There is no change in the TCS rate for remittances towards medical treatment abroad. TCS at 5 percent will apply on the amount exceeding Rs 7 lakh in a financial year under LRS.
If the amount remitted under LRS in a financial year is Rs 20 lakh for medical treatment, TCS at 5 percent will be applicable on Rs 13 lakh (Rs 20 lakh less Rs 7 lakh) and the tax collected will be Rs 65,000.
Can I ask my relatives or friends living abroad to pay on my behalf (instead of using my credit card) and reimburse them later? Is this legally allowed?
According to Rohinton Sidhwa, a partner at Deloitte India, the rules permit the obligation of a resident to be met by a non-resident, but reimbursements are not allowed.
“A relative can make a gift of foreign exchange to an Indian resident. But if the idea is to pay first and then reimburse later, that is not permissible under the law,” Sidhwa said.
How do I claim TCS credit while filing income tax returns?
To claim TCS credits, you will need a TCS certificate provided by the collector. This certificate can be used while filing your income tax returns to claim TCS credits. While filing the returns, provide the TCS details in the appropriate section of the form. This typically includes the TCS amount, TCS certificate number, and other relevant information.
The taxpayer can claim TCS credits against their total tax liability, which is the tax payable. TCS credit reduces the overall tax liability or can be refunded if it exceeds the tax liability.