To avoid any procedural ambiguity, it has been decided that any payments by an individual using their international Debit or Credit cards up to Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS,” the Finance Ministry noted.
Facing backlash and concerns on the 20 percent tax collection at source (TCS) diktat for overseas credit and debit card spending, the government on May 19 clarified that it has exempted any payments by an individual using their international cards up to Rs 7 lakh per financial year.
“Concerns have been raised about the applicability of Tax Collection at Source (TCS) to small transactions under the Liberalized Remittance Scheme (LRS) from July 1, 2023. To avoid any procedural ambiguity, it has been decided that any payments by an individual using their international Debit or Credit cards up to Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS,” the Finance Ministry clarified.
The ministry also stated that existing beneficial TCS treatment for education and health payments will also continue.
The necessary changes to the Rules (Foreign Exchange Management (Current Account Transactions Rules), 2000) will be issued separately, it added.
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The ministry on May 16 notified the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023, that spending in foreign exchange through international credit cards will be covered under the Reserve Bank of India’s liberalised remittance scheme (LRS).
All international transactions made using credit cards when outside India have been brought under the RBI’s LRS, which permits Indian residents to send up to $250,000 in a financial year abroad, without prior approval from the central bank. This has come into effect from May 16, 2023, as per a notification by the Ministry of Finance in the Gazette of India.
And by extension, such spends beyond a transaction value of Rs 7 lakh will now come under 5 percent tax collected at source (TCS). This rate is applicable only up to June 30, 2023. To make matters worse, from July 1, 2023, these credit card transactions will attract a higher TCS rate of 20 percent with no minimum threshold.
