The central government on Wednesday announced that overseas spending using credit cards will not be included under the Liberalised Remittance Scheme (LRS) and won’t be subject to Tax Collection at Source (TCS).
The finance ministry also announced that overseas transfers up to Rs 700,000 per annum under LRS will not face tax collected at source. However, in case of buying overseas tour program packages, 5 per cent TCS will be levied for the first Rs 700,000 per individual per annum. The higher rate of 20 per cent will apply to expenditures above this limit, the ministry said.
It also extended the timeline to implement the increased proposed TCS rates with effect from 1 October instead of 1 July this year. The decision has come after experts and banks raised concerns about the increased compliance burden and unpreparedness of the reporting systems to roll out differential TCS levies for several categories such as medical, education, and overseas tour packages among others.
“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 16th May 2023 e-gazette notification,” a finance ministry said in a statement.
It added that the transactions through international credit cards while being overseas would not be counted as LRS and hence would not be subject to TCS.
The government will bring requisite legislative amendment in this regard in due course, it said.
On 16 May, overseas credit spending was brought under the cover of the LRS scheme after the finance ministry scrapped Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000.
After facing backlash, the government stated on 19 May stating overseas expenditures up to Rs 700,000 on credit cards would not be counted towards LRS and hence not levy TCS.
Under the LRS scheme, an individual can spend up to US $250,000 abroad without the Reserve Bank of India's (RBI) permission. In the Union Budget for fiscal 2023-24, the government proposed to increase the TCS rate levied on overseas remittance on the purchase of tour programs and any other foreign transfers except health and education spending to 20 per cent from July 1, up from 5 per cent. The old rates now stand deferred till 1 October.
The increase in TCS rates will come into effect from 1 October 2023, with modifications, the ministry said.
