New Delhi: From July 1, 20% Tax Collected at Source (TCS) will be levied on foreign credit card spends by Indians, except such spends on travel for education or medical treatment, which will be subject to a lower rate, the finance ministry said. Gave clarification on amendments to Foreign Exchange Management Rules issued earlier in the week.
The credit card issuer will collect the tax when the bill is settled in rupees and can be adjusted against the tax liability of the cardholder while paying the taxes.
Experts said that while the salaried class may have to wait till the time of filing returns, professionals can use this credit to meet their advance tax liability on a quarterly basis.
Experts also said that the requirement of TCS could create cash flow problems for people traveling abroad. The inclusion of overseas use of credit cards within the purview of the Reserve Bank of India’s liberalized remittance scheme, which attracts TCS, is effective from May 16. Currently, TCS rates range from 0.5% to 5%.
The set of clarifications brought out by the ministry includes several issues regarding the increased TCS rates to be implemented from July 1. As per the budget announcements, foreign remittances on purchase of tour packages and ‘any other foreign remittance’ except for education and health expenditure covered under LRS will be taxed at 20% from July 1, up from 5% now. Credit card usage during foreign trips is now covered under LRS, with an annual limit of $250,000, above which RBI permission is required. Use of debit cards abroad during visits was covered under LRS earlier also.
The ministry said that it has come to notice that due to the exemption given on the use of credit cards abroad while traveling abroad, some people have exceeded the limit for remittances abroad under LRS.
“In the interest of uniformity…and prudent foreign exchange management, there is a need to remove differential treatment between debit cards and credit cards to capture aggregate expenditure under LRS and prevent circumvention of LRS limits,” the ministry said. Is.” It also said that in FY23, LRS remittances stood at over $24 billion, of which foreign remittances accounted for more than half.
The ministry’s clarification states that the lower rates of TCS will be applicable when the foreign travel is for education or medical treatment. i.e., 0.5% TCS on remittance related to education if made out of loan and 5% if not made out of loan, both subject to a limit 7 lakhs.
For TCS on remittances for travel and incidental expenses relating to education and medical treatment, the rates of TCS applicable to remittances for education and medical treatment respectively will be applicable. The ministry said a detailed clarification would be issued separately.
A relief is available to employees on foreign assignment- the expenses incurred during such business trips to be borne by the employer will be considered outside the LRS.
Sudhir Kapadia, a partner in tax and regulatory services at EY, said the latest move to include credit card payments made abroad within the LRS limit will wean people away from credit card usage and informal avenues for obtaining foreign exchange. Will find out
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