TCS of 20% on International Spending, credit cards under LRS: Finmin offers Rs 7-lakh relaxation

?? There has been a surge in discussions on social media regarding the implications of changes brought in by the RBI's liberalized remittance scheme (LRS).?

What is this change?

• Credit card spending outside India will now be covered under the RBI's LRS. This expands its scope, which previously included only debit cards, forex cards, and bank transfers. As a result, transactions made with credit cards outside of India will now be subject to the higher TCS levy.
• From July 1, a TCS levy of 5% will be applicable to these transactions, increasing to 20% thereafter (except for medical and education-linked sectors).

So, what are the key takeaways?

1?? The LRS scheme allows residents to spend funds abroad for various purposes, including travel, education, medical treatment, and investments. However, certain transactions prohibited by FEMA and remittances for margins or margin calls to overseas exchanges/counterparties are not permitted under this scheme.

The TCS is only applicable to foreign outward remittances. It is not applicable to foreign inward remittances.

2?? Until now, the LRS limit did not apply to a resident Indian's use of credit cards during foreign travel. However, the recent changes impose a $250,000 cap on remittances abroad through credit cards per year. This alteration will impact the usage of international credit cards for expenses incurred while traveling abroad, potentially leading to increased costs for foreign travel.

3?? The Union Budget 2023-24 raised the TCS rates from 5 percent to 20 percent on overseas tour packages and funds remitted under LRS (excluding education and medical purposes). This change, effective from July 1, 2023, will increase the immediate total expenditure incurred by individuals on their travel. For example, if you book a family tour package costing Rs 4 lakh and use your credit card for the transaction, you will have to allocate an additional Rs 80,000 due to the TCS changes. It's important to note that these changes will not only impact individuals but also merchants.

Latest in this is - To avoid any procedural ambiguity, it has been decided that any payments by an individual using their international Debit or Credit cards upto Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS

?? Clarity is needed regarding TCS provisions for pre-loaded forex cards. Transactions through debit and forex cards fall under the LRS scheme, but guidelines for TCS on remittances via forex cards require further clarification.

?? The 20% TCS rate applies only to international credit cards, which operate outside the Indian network. It will not be applicable if you book an overseas tour package from an Indian tour operator.

?? Taxpayers can claim the 20% TCS as a refund during Income Tax Return (ITR) filing since it is a direct tax levy.?So, if you have paid a TCS of INR 100,000 and your tax liability is INR 80,000, then you are eligible for a refund of INR 20,000.

What I am feeling right now is that - firstly, we need to stop using hyperboles and go deeper into the concept of it. TCS paid is adjustable and since tax payers can claim a refund or adjustment, hence, the net effect shall more or less be same. Having said that, the rate pof tax may be relooked (20% is indeed high) considering liquidity issues that many people may face. The threshold specification is a welcome change.