Increased TCS On Credit Card Transactions Abroad To Be Effective From October 1, Not July 1
In a surprise move late on Wednesday, the Finance Ministry dropped plans to levy TCS on overseas payments made through international credit cards and said such expenses will be included in the Liberalised Remittance Scheme (LRS) of the RBI.
The government has also deferred by three months the implementation of a higher Tax Collected at Source (TCS) rate of 20 per cent on expenditures made under LRS and overseas tour packages till September 30. The new rates will come into effect from October 1.
Why is the roll-out delayed??
In a statement, the ministry said to give adequate time to banks and card networks to put in place requisite IT-based solutions, the government has decided to postpone the implementation of its May 16, 2023, notification through which credit card expenses were brought under LRS.
The ministry also clarified that "transactions through international credit cards while being overseas would not be counted as LRS and hence would not be subject to TCS".
This means that the government has dropped plans to levy TCS on international credit card spending.
TCS on international spending?
The Budget 2023-24 had raised TCS rates on LRS and foreign tour packages from 5 per cent to 20 per cent, effective July 1.
With Wednesday's announcement of deferment of a higher TCS rate, LRS spending above Rs 7 lakh would attract 20 per cent TCS from October 1.
On the purchase of overseas tour packages, a TCS of 5 per cent will be applicable on payments up to Rs 7 lakh. Above the threshold, 20 per cent would be levied from October 1.
Current TCS rates?
Currently, overseas tour packages and LRS spending above Rs 7 lakh attract 5 per cent TCS.
Also, a TCS of 5 per cent is levied on expenses exceeding Rs 7 lakh towards medical treatment and education.
For those availing loans for overseas education, a lower TCS rate of 0.5 per cent would be levied above the Rs 7 lakh threshold.
"The increase in TCS rates, which were to come into effect from 1st July 2023, shall now come into effect from 1st October 2023," the ministry said.
Criticism over TCS on Forex transactions
The move to impose TCS on Forex transactions had invited heavy criticism, with some even calling it tax terrorism.
Many had also pointed out that India is the only country in the world that was seeking an upfront tax on any expenditure made during overseas trips that would impact foreign tourism.
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