International Credit Card Spending Abroad Not Included In LRS, Will Not Attract TCS: Government
In a major relief to credit card holders, the government has dropped a previous proposal to levy Tax Collected at Source (TCS) on foreign spending.
As per the notification issued by the finance ministry on Friday night, payments made by using international credit cards (ICC) during overseas visits will be excluded from the purview of the Reserve Bank's Liberalised Remittance Scheme (LRS), and thus no TCS will be applicable.
What the government said
"...the use of ICC for making payment by a person towards meeting expenses while such person is on a visit outside India" will not be covered under LRS, the notification said while inserting Rule 7 in FEM (CAT) Rules.
The amendment will be effective retrospectively from May 16, the ministry said in a notification.
The amendment reverses a May 16 notification by the ministry which omitted Rule 7 from FEM (CAT) Rules, thereby effectively including forex spending through ICCs under LRS.
LRS on credit card spending
Under LRS, a resident can remit money abroad up to USD 250,000 per annum. Any remittance beyond this would require approval from the RBI.
Also, remittances under LRS are subject to TCS. Bringing ICC spends within LRS would have increased the compliance burden for banks.
Earlier this week, the government had deferred by three months the implementation of a?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.
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.
Proposed in Budget 2023-24
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.
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.
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.
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