International Credit Card spending will now come come under the Liberalised Remittance Scheme (LRS) from May 16, 2023.
This means that for travellers and tourists going abroad, spending with international credit cards will now attract a higher rate of Tax Collected at Source (TCS) at 20% effective July 1, 2023.
The Central Government on Tuesday notified the amended rules under the Foreign Exchange Management Act (FEMA), which has brought credit card spending outside India under the LRS.
This may help the government track high-value overseas transactions, but the imposition of additional charges on international credit card spending has been met with disappointment by netizens.
While this step is aimed at increasing RBIs grip on foreign remittances, the 20% TCS rule may lead to cash flow issues for high-net-worth individuals (HNIs).
The move may also lead to a higher tax outgo for many individuals.
Experts opine more clarity is needed on how the tax authorities would distinguish between international purchases on the Internet and credit card spending abroad.
What transactions are included in FEMA?
The FEMA notification now includes several types of payments done through international credit cards while abroad such as air travel, entertainment, hotel booking, food etc.
Foreign exchange spending on personal transactions of expenses and gifts, and medical treatment will be subject to a ceiling of $2,50,000.
For spending above $2,50,000 (approx INR 2.06 crore), prior approval will be required.
Can you claim credit back?
Taxpayers can claim the ‘20% TCS’ back at the time of Income Tax Return (ITR filing), the refund would be available only after the processing of ITR, however.
Summary
- Credit card transactions by individuals abroad will be subject to the annual LRS limit of $2,50,000
- Any higher spending would require prior approval from the Reserve Bank of India (RBI)
- International credit card transactions will also attract TCS at the rate of 20% from July 1
- The TCS rate till June 30 is 5%
- The higher TCS rate would be applicable for international credit card transactions from July 1, 2023.
The rule may lead to a drop in the value of transactions through international credit cards, experts believe.