The increased rate of 20% tax collected at source on high-value spends will apply from Oct. 1, according to a government statement.

The extension has been allowed to provide clarity to banks and offer adequate time to lenders and card networks to put in place required technology solutions. Bankers had reportedly flagged the issue to the ministry, seeking clarity as reporting standards and the software enabling them to deduct 20% TCS is still not ready. They expected FAQs from the government that would provide clarity on the rollout.

The change in rule was aimed to bring credit card spending outside of India under the ambit of the Liberalised Remittance Scheme.

The government’s initial move to tax all foreign credit card transactions triggered concerns of putting additional burden on genuine taxpayers. The Finance Ministry then kept spends of up to Rs 7 lakh out of the ambit of the higher rate.

According to the latest clarification issued by the Finance Ministry, if a person is overseas and spends through credit card, it would not count under LRS and, therefore, won't attract any tax.

However, if a person uses credit card while in India for permissible overseas transactions, that would count under LRS and attract tax if the spends cross Rs 7 lakh in a year.