The Government of India has decided to impose 20 percent tax collection at source on the use of credit cards outside the country (abroad). This rule has been changed after the Center consulted the Reserve of India (RBI).
Its information was given by the government through notification. It has been decided to bring the expenses incurred abroad on international credit cards under the ambit of LRS. Its indirect effect will be that TCS will be imposed. Means it will be shown in the total tax liability. This is similar to how ITC is available in GST.
What does the notification say-
The Finance Ministry said in the notification that in the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023 (Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023) Liberalized Remittance Scheme (Liberalized Remittance Scheme ( LRS)) will cover international credit card payments.
The notification states that Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 (Foreign Exchange Management (Current Account Transactions) Rules, 2000) has been deleted, which provides for travel expenses outside India under LRS. Brings the use of international credit cards to completion.
The notification brings credit card transactions outside India under LRS with immediate effect, under which more TCS will now be levied. According to the budget, it will come into force with effect from 1 July 2023.
Earlier, the use of credit cards abroad during travel was not covered under LRS. This previously included debit cards, forex cards and bank transfers.
What does this mean for the common man- Credit cards used outside India will now attract a higher rate of TCS of 20 per cent with effect from July 1. This is because credit card transactions done outside India will come under the purview of LRS with immediate effect.
TCS of 5 percent will be imposed on such transactions till July 1, except in the sectors related to medical and education.
However, after July 1, a 20 per cent fee will be charged on all such transactions. Under the LRS scheme, Indian residents are allowed to remit up to $250,000 (approximately over Rs 2 crore) every year without any pre-approval from the Reserve Bank of India.
While calculating the LRS limit of $250,000 per person in a financial year, the use of international credit cards for overseas travel or online international purchases by Indians was not included.
Protest on social media- Many people have expressed concern over this move of the government. Especially in this, businessmen and people going abroad in connection with work are included. Tagging Nirmala Sitharaman, a user named Ajay Roti wrote that TCS should not be increased on the international use of credit cards as it can affect many business trips, especially those that are incurred by the company. He further said that 20% TCS is too much. That’s why this proposal should be dropped here.
Many users believe that 20% TCS on the use of credit cards abroad will affect the business. Meanwhile, most of the users posted memes to criticize the move.
Cleanliness of the Ministry of Finance
The Finance Minister has issued a clarification regarding the tax on credit cards. The Finance Ministry has taken this decision to stop those who ignore LRS. LSR stands for Liberalized Remittance Scheme. The decision has been taken to find out all the expenses incurred under LRS.
Many people used to exceed the limit of LRS due to credit card transactions abroad not being included in LRS. This decision was taken to eliminate the difference between debit card and credit card. The Reserve Bank had recommended several times to include credit card transactions abroad in the LRS.
