TCS at 20%: FinMin clarifies no tax collection on foreign spending via credit cards for payments up to Rs 7 lakh

TCS at 20%: The Union Finance Ministry on Friday clarified that any payments by an individual using their international Debit or Credit cards up to Rs 7 lakh per financial year will be excluded from the Liberalised Remittance Scheme (LRS) limits. 
“It has been decided that any payments by an individual using their international Debit or Credit cards up to Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS,” the ministry said in a fresh notification. 
The ministry also stated that existing beneficial TCS treatment for education and health payments will also continue.

The necessary changes to the Rules (Foreign Exchange Management (Current Account Transactions Rules), 2000) will be issued separately, it added.

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On May 16, the ministry noted that as per the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023, spending in foreign exchange through international credit cards will be covered under the Reserve Bank of India's liberalised remittance scheme (LRS).

Today's relaxation was declared after the government’s earlier decision to include all international credit card transactions under the LRS limit, and make a 20 per cent TCS on such transactions mandatory caused a lot of confusion among users.

Travellers and people were concerned that such a levy would make international transactions like foreign travel more expensive.

"The relaxation on TCS has been given only for overseas spending using International debit or credit cards if the threshold limit of Rs 7 lakhs per financial year is not breached. This relaxation shall not be available for any remittances made from India. Thus, any remittance for investment, ticket booking, purchase of goods, payment of subscription fees, etc., shall continue to be subject to TCS at 20%," said Naveen Wadhwa, DGM of Taxmann.com. 

In the Union Budget 2023, the Centre had announced that international credit card expenses would be subject to a higher TCS rate of 20 percent, effective from July 1.

On Thursday, the Finance Ministry issued a set of FAQs regarding the tax and its applicability. 

> The payment of TCS is not a final tax

> If the TCS payee is a taxpayer, he can claim credit for the TCS as his tax payment against regular income and adjust it against the advance tax etc., payments accordingly.

> If the TCS is of a person not being a taxpayer, then the 20 per cent rate on such presumed income is not high.

> The tax rate slab of 20 per cent starts in the new regime for incomes over Rs 12 lakh and is 30 per cent for incomes over Rs 15 lakh.

> Instances have come to notice where the LRS payments are disproportionately high when compared to the disclosed incomes.

> No changes in medical or Education expenses- Position stays as it was before the Finance Act 2023.

> Primary impact only on investment in assets such as real estate, bonds, stocks outside India by HNI and tour travel packages or gifts to non-residents.

> Those individuals remitting from their own funds are normally expected to be higher-income taxpayers, and for those remitting through institutional loans for education, a concessional rate of 0.5% is provided.

What is RBI's Liberalised Remittance Scheme?

* LRS is a scheme that allows residents to remit money outside India.

* Under the LRS scheme, the RBI allows residents to spend funds abroad up to the specified ceiling for investment and expenditure, including travel, education, medical treatment and buying securities and physical assets.

* Under the scheme, an individual can send a maximum of $250,000, which is more than Rs 2 crore, to an overseas jurisdiction in a year.

* One cannot remit funds abroad for prohibited purposes like buying lotteries or banned magazines, amongst others.

* There is no restriction on the frequency or number of transactions during a financial year. However, the total amount of foreign exchange remitted through all sources in India under LRS during the current FY should be within the LRS limit as specified by the RBI.

* urther, resident individuals can avail of foreign exchange facilities for the purposes mentioned in Para 1 of Schedule III of FEM (CAT) Rules 2000 within the limit of $2,50,000 only.

* The scheme is not available to corporates, partnership firms, HUF, Trusts, etc.

Which all transcations are covered under LRS?

According to the Rule 5 of the FEM (CAT) Rules, 2000, individuals can avail of a foreign exchange facility for the following purposes:

i) Private visits to any country (except Nepal and Bhutan)
ii) Gift or donation
iii) Going abroad for employment
iv) Emigration
v) Maintenance of close relatives abroad
vi) Travel for business, attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as an attendant to a patient going abroad for medical treatment/ check-up
vii) Expenses in connection with medical treatment abroad
viii) Studies abroad
ix) Any other current account transaction
It is to be noted that all transactions should be below $250 billion.

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