TCS on using credit card 2024: Now you will have to pay 20% TCS on international use of credit card, the cost of foreign trip will increase
TCS on using credit card 2024 : In a move to curb large outflows of foreign currency, the Union Budget has proposed to bring foreign credit card spends of over Rs 7 lakh under the Liberalised Remittance Scheme (LRS). In simple terms, spending over Rs 7 lakh in a business year abroad through debit cards, forex cards and some other modes attracts a 20 per cent TCS. But, credit cards are exempted from this. Spending made through credit cards may be brought under the 20 per cent Tax Collected at Source (TCS), sources told Moneycontrol.Under the Reserve Bank of India’s LRS scheme, an Indian resident can comfortably transfer funds up to USD 2,50,000 outside India in a business year.
What is 20% TCS?
Earlier, Indian residents could send an amount of up to $2,50,000 (around Rs 2 crore) out of India in a financial year without any RBI approval. This amount was used for various purposes such as travel, education, medical treatment and more. TCS on using credit card 2024 However, there was no specific limit for purchases made using international credit cards.
The recent amendment now covers all foreign exchange transactions made with debit cards, credit cards or forex cards within the aggregate limit of $2,50,000 in a financial year (April to March). If this limit is exceeded, approval from the RBI becomes necessary.TCS on using credit card 2024 Transactions covered under LRS are subject to Tax Collected at Source (TCS), which means the tax will be collected upfront at the time of making the payment.
Impact of 20% TCS
From July 1, 2023, the TCS rate on international credit card transactions has been increased from 5% to 20%, as announced in Budget 2023-24. This means that foreign exchange transactions made using international credit cards within the limit of USD 2,50,000 will attract a hefty TCS of 20%.
Moreover, the TCS amount collected by the bank will be available as credit and can be adjusted against your quarterly advance tax or annual income tax liability. So, while this may seem like a blow to your holiday budget, you will have the opportunity to offset it against your tax dues.
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The government is focusing on this
Bringing credit card expenses under LRS is the government’s focus. This has been discussed in the Finance Ministry. Another government official told Moneycontrol that changes in the Income Tax Act may be part of the Finance Bill in the Union Budget.
Data from the Reserve Bank of India showed that outward remittances under the LRS reached $31.73 billion in 2023-24, up 16.91 per cent from $27.14 billion last year. The interim budget presented by Finance Minister Nirmala Sitharaman in February did not include a provision to bring international credit card transactions under the tax framework collected at source.
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This is the rule right now
The government has responded to this feedback and provided some relief. The 20% TCS will now apply only to expenditures above Rs 7 lakh. So, any expenditure above Rs 7 lakh, whether it is for travel, hotel bookings or general shopping, will be subject to 20% TCS. Specified transactions, such as medical expenses or education costs up to Rs 7 lakh, will continue to benefit from the reduced TCS rate of 5% (0.5% if the education expenditure is made using an education loan).