In a reversal of its earlier decision, the government on Wednesday decided to defer the decision to include international credit card spends outside India under the Liberalised Remittance Scheme (LRS). This, in effect, means there will be no levy of Tax Collected at Source (TCS) on international credit card spends outside India as of now.
The government also extended the timeline to levy the higher proposed TCS rates with effect from October 1 instead of July 1 this year. This postponement has come amid banks raising concerns about the unpreparedness of their reporting systems to roll out the differential TCS levy for various categories such as medical, education, overseas tour packages among others.
Explained | International credit card spends outside India will attract 20% TCS: How cardholders may be impacted
With this, the TCS levy is back to its stated position as announced in the Budget for 2023-24 till the new rates kick in from October 1 and the inclusion of international credit card spends outside India under LRS is going to take a longer time. Government sources said the TCS levy, for all practical purposes, is now in cold storage.
In a release issued Wednesday, the Union Finance Ministry said the decision has been taken after “discussions with various stakeholders, and taking into account comments and suggestions received” and to give adequate time to banks and card networks to put in place requisite IT-based solutions. “The increase in TCS rates; which were to come into effect from 1st July, 2023 shall now come into effect from 1st October, 2023 with the modification as in (ii) above. Till 30th September, 2023, earlier rates (prior to amendment by the Finance Act 2023) shall continue to apply,” the ministry said in a statement.
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The threshold of Rs 7 lakh per financial year per individual will be there for TCS on “all categories of LRS payments, through all modes of payment, regardless of the purpose”. This implies there will be no TCS up to Rs 7 lakh remittance under LRS. Beyond this Rs 7 lakh threshold, TCS shall be levied at the rate of 0.5 per cent (if remittance for education is financed by education loan); 5 per cent (in case of remittance for education/medical treatment); and 20 per cent for others.
EXPLAINED
The move, the rethink
Expanding the TCS on outward flow of money was the main aim in the Budget decision this year. Money flowing outside India under LRS accounts for nearly 0.8 per cent of the GDP, and this does not include the spending outside India through credit cards. The idea to levy TCS on overseas credit card spend, which met with opposition from many sections, has almost been put in cold storage now.
On purchase of overseas tour packages, TCS of 5 per cent will be applicable on payments up to Rs 7 lakh. Above the Rs 7 lakh threshold, 20 per cent TCS would be levied from October 1.
Currently, overseas tour package and LRS spending attracts 5 per cent TCS and there is no threshold.
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Through the Finance Act 2023, the government had amended sub-section (1G) of section 206C of the Income-tax Act proposing an increase in the rate of TCS to 20 per cent from 5 per cent for remittance under LRS as well as for purchase of overseas tour program package and removed the threshold of Rs 7 lakh for levy of TCS on LRS. These amendments were to come into effect from July 1. No changes were made for remittance for education or medical purposes.
On May 16, the Centre amended rules under the Foreign Exchange Management Act (FEMA), bringing international credit card spends outside India under the LRS. As a consequence, spending on international credit cards would have then attracted a higher rate of TCS at 20 per cent from July 1. Later, on May 19, after widespread criticism over the tweaks, the Finance Ministry had specified a uniform Rs 7 lakh threshold per year for international debit and credit card transactions to be excluded from the limit under the LRS and, hence, the levy of TCS until this monetary limit.
Under LRS, all resident individuals, including minors, can remit up to US $250,000 (approximately Rs 2.06 crore) abroad per year without prior approval from the RBI. The government, in the notification allowing credit card spends under LRS, had said the decision was taken in consultation with the Reserve Bank of India (RBI).