20% TCS on all international transactions done using a credit card

[TechnoFino]

Effective from May 16, 2023, all international transactions made using credit cards will now fall under the Liberalized Remittance Scheme (LRS). Furthermore, a 5% Tax Collected at Source (TCS) will be applicable on all international transactions until July 1, 2023.

#FEMA 2000 rule no 5 & 7:



# official Gazette of GOI, department of economic affairs: notified rule 7 (of FEMA 2000) has been omitted



Currently, a 5% Tax Collected at Source (TCS) will be applicable on transactions exceeding the threshold of Rs. 7 Lakhs in a financial year. This means that if your total spending is below Rs. 7 Lakhs till 1st July, 2023, no TCS will be charged. However, if your spending reaches Rs. 8 Lakhs, the 5% TCS will be applicable only on the amount exceeding Rs. 7 Lakhs, which is Rs. 1 Lakh in this case.

Starting from July 1, 2023, a 20% Tax Collected at Source (TCS) will be applicable on all international transactions conducted using Indian credit cards. Whether you are purchasing a holiday package or indulging in shopping, you will be required to pay a 20% TCS. However, you will have the option to adjust this amount while filing your Income Tax Return (ITR).
Effective immediately, all credit card transactions will be subject to the applicable Liberalized Remittance Scheme (LRS) rules. This means that any total transactions exceeding USD 2.5 lakh or its equivalent in foreign currency will require prior approval from the Reserve Bank of India (RBI).

Furthermore, a 5% Tax Collected at Source (TCS) will be applicable on transactions falling under the medical and education categories, but only for amounts exceeding 7 lakhs. For instance, if you make a payment of Rs. 9 lakhs towards educational institution fees, the 5% TCS will be charged on Rs. 2 lakhs (the amount exceeding 7 lakhs).

Reference/Source: FEMA (Current Account Transactions) Rules, 2000

Update on 19th May, 2023:

The Ministry of Finance has recently issued a clarification regarding the implementation of TCS (Tax Collected at Source) on credit card and debit card transactions from July 1, 2023.

According to the latest notification, any individual making payments using their international debit or credit cards up to Rs. 7 lakh per financial year will be excluded from the LRS (Liberalized Remittance Scheme) limits. This means that these transactions will not attract any TCS. Additionally, the existing TCS exemption for education and health payments will continue to apply.

So, you can enjoy TCS-free international transactions up to

• Rs. 7 lakhs for medical purposes
• Rs. 7 lakhs for educational purposes
• and another Rs. 7 lakhs for other purposes

Once you exceed the TCS-free limit, a 5% TCS will be applicable for medical and educational transactions, while a 20% TCS will be levied for all other transactions.

Note/Update: TCS not applicable on credit card international transactions, It's on hold.

 

[Stratosphere]

I would love for someone to explain this in layman's terms like I'm a 5-year-old. What are the repercussions on paying visa fees through WorldPay for example? On Foreign subscriptions? Does it mean till 7 lakhs, no TDS will be there on any expense or does it start regardless from July 2023? Thanks in advance

 

[srichaitanya]

20% TCS will be only for credit cards?
doing intl transactions using debit card, forex card or UPI will also have TCS?
anyone please clarify

 

[sonuyos]

Where is the source for this?
I do not see any update on Income Tax site.

 

[TheMentalist]

Effective from May 16, 2023, all international transactions made using credit cards will now fall under the Liberalized Remittance Scheme (LRS). Furthermore, a 5% Tax Collected at Source (TCS) will be applicable on all international transactions until July 1, 2023.



Currently, a 5% Tax Collected at Source (TCS) will be applicable on transactions exceeding the threshold of Rs. 7 Lakhs in a financial year. This means that if your total spending is below Rs. 7 Lakhs till 1st July, 2023, no TCS will be charged. However, if your spending reaches Rs. 8 Lakhs, the 5% TCS will be applicable only on the amount exceeding Rs. 7 Lakhs, which is Rs. 1 Lakh in this case.

Starting from July 1, 2023, a 20% Tax Collected at Source (TCS) will be applicable on all international transactions conducted using Indian credit cards. Whether you are purchasing a holiday package or indulging in shopping, you will be required to pay a 20% TCS. However, you will have the option to adjust this amount while filing your Income Tax Return (ITR).
Effective immediately, all credit card transactions will be subject to the applicable Liberalized Remittance Scheme (LRS) rules. This means that any total transactions exceeding USD 2.5 lakh or its equivalent in foreign currency will require prior approval from the Reserve Bank of India (RBI).

Furthermore, a 5% Tax Collected at Source (TCS) will be applicable on transactions falling under the medical and education categories, but only for amounts exceeding 7 lakhs. For instance, if you make a payment of Rs. 9 lakhs towards educational institution fees, the 5% TCS will be charged on Rs. 2 lakhs (the amount exceeding 7 lakhs).

Reference/Source: FEMA (Current Account Transactions) Rules, 2000

Is it applicable only for Credit Card transactions, and not for Debit/Prepaid Card transactions?

 

[TechnoFino]

I would love for someone to explain this in layman's terms like I'm a 5-year-old. What are the repercussions on paying visa fees through WorldPay for example? On Foreign subscriptions? Does it mean till 7 lakhs, no TDS will be there on any expense or does it start regardless from July 2023? Thanks in advance

Doesn't matter for what you spend (except medical and education) you'll be charged 20% TCS after July 1st. and till July 1st, 2023, 5% TCS will be charged after spending total of rs. 7 lakhs.
if you spend 6L till 1st July, 2023 - no TCS
if you spend 9L till 1st July, 2023 - 5% TCS on 2L
if you spend 50K after July 1st, 2023 - you'll be charged 20% TCS.

20% TCS will be only for credit cards?
doing intl transactions using debit card, forex card or UPI will also have TCS?
anyone please clarify

20% TCS on all LRS transactions except medical and education. debit cards, forex cards are already under LRS.

Where is the source for this?
I do not see any update on Income Tax site.

check FEMA (Current Account Transactions) Rules, 2000

 

[sonuyos]

check FEMA (Current Account Transactions) Rules, 2000

https://incometaxindia.gov.in/Documents/Provisions%20for%20NR/provision-for-non-resident-fema-current-account-transactions-rules-2000.htm#:~:text=No%20person%20shall%20draw%20foreign,**%5D%20of%20the%20remitter.

Doesn't seems to be omitted here. Provide Your Source.

 

[bhavya10373]

I would love for someone to explain this in layman's terms like I'm a 5-year-old. What are the repercussions on paying visa fees through WorldPay for example? On Foreign subscriptions? Does it mean till 7 lakhs, no TDS will be there on any expense or does it start regardless from July 2023? Thanks in advance

1. This is not TDS but TCS. TDS is deducted on income but TCS can be charged on any transaction.
2. 20% TCS on all international transactions from July 1.
If you make a transaction of Rs 1 Lakh on July 3 , the government takes an additional Rs. 20,000 as TCS. When you file income tax return some time July next year, Government will ask for Rs. 20000 less in tax from you.

 

[TechnoFino]

Is it applicable only for Credit Card transactions, and not for Debit/Prepaid Card transactions?

Prepaid cards are not valid internationally and debit cards are already under LRS

https://incometaxindia.gov.in/Documents/Provisions%20for%20NR/provision-for-non-resident-fema-current-account-transactions-rules-2000.htm#:~:text=No%20person%20shall%20draw%20foreign,**%5D%20of%20the%20remitter.

Doesn't seems to be omitted here. Provide Your Source.

https://www.indianembassyusa.gov.in/pdf/FEMA-1.pdf

 

[anirban.choudhury]

This TCS can be claimed back while filing ITR

 

[WhoU]

And I am guessing addon members’ spend will be counted against primary holder’s PAN. Will that be the case?

 

[thanix]

This TCS can be claimed back while filing ITR

Or can be adjusted against advance tax payment or even TDS by providing valid TCS certificate.

 

[Stratosphere]

Doesn't matter for what you spend (except medical and education) you'll be charged 20% TCS after July 1st. and till July 1st, 2023, 5% TCS will be charged after spending total of rs. 7 lakhs.
if you spend 6L till 1st July, 2023 - no TCS
if you spend 9L till 1st July, 2023 - 5% TCS on 2L
if you spend 50K after July 1st, 2023 - you'll be charged 20% TCS.


20% TCS on all LRS transactions except medical and education. debit cards, forex cards are already under LRS.


check FEMA (Current Account Transactions) Rules, 2000

1. This is not TDS but TCS. TDS is deducted on income but TCS can be charged on any transaction.
2. 20% TCS on all international transactions from July 1.
If you make a transaction of Rs 1 Lakh on July 3 , the government takes an additional Rs. 20,000 as TCS. When you file income tax return some time July next year, Government will ask for Rs. 20000 less in tax from you.

So in essence, if I wanna make a foreign transaction of Rs 100 after 1st July, my credit card will be debited by Rs. 120, regardless of the category of spend I am making, right?

Also, will this effectively reduce my credit limit by 20% on foreign spends or will banks make adjustments and charge us at statement generation? Who will be providing us the TCS certificates exactly?

 

[anirban.choudhury]

So for someone using CC that charges 2% Forex markup , and spends 1 lakh , upfront he will be charged 22360 Rs
out of which 20000 he can claim back during ITR

 

[sonuyos]

Prepaid cards are not valid internationally and debit cards are already under LRS

https://www.indianembassyusa.gov.in/pdf/FEMA-1.pdf

That link literally claims the opposite of what this post says.

It shows the Point 7 still being there.

 

[anirban.choudhury]

So in essence, if I wanna make a foreign transaction of Rs 100 after 1st July, my credit card will be debited by Rs. 120, regardless of the category of spend I am making, right?

only if your card offers 0 forex markup , if markup is there then add that too with gst of 18%

 

[CMG]

Now, it's necessary to keep a record of all foreign exchange transactions, including minor domain purchases. All of these need to be verified during the income tax return filing. This will become even more inconvenient when making expenditures during international travels. Bought a coffee at an airport in Vietnam? You'll need to record that and verify it during your income tax return.

 

[CMG]

only if your card offers 0 forex markup , if markup is there then add that too with gst of 18%

TCS have GST?

 

[thanix]

I was expecting regular ITR filers get 5% and only non filers will be slapped with 20% to catch them.

The government is drunk with arrogance and I will use my voter ID card rather than my credit card to get even

 

[anirban.choudhury]

And I am guessing addon members’ spend will be counted against primary holder’s PAN. Will that be the case?

The claim will be on basis of TCS certificate , add-on can spend and get tcs certificate on his name and then claim
If my understanding is correct this should be the process