Why is ‘20% TCS’ on Credit cards trending? 10 Key Takeaways and Implications
Many people didn’t realise the impact of 20% TCS on foreign remittances, when the budget was passed in parliament. Now it has become Act and Law
The government in consultation with the RBI has moved to amend the Foreign Exchange Management (Current Account Transaction) Rules by making credit card transactions also fall under the LRS or Liberalised Remittance Scheme limit of $250,000.
Any foreign remittance or purchase over and above this limit will need prior RBI approval.
Till now, credit card spending was not counted as part of the LRS ceiling. However, all that is set to change come July 1. The move seems to be aimed at curbing the circumvention of LRS limits via the use of credit cards
Yes, Finance Ministry can always make changes via Ordinance or else. The following are some key takeaways from changes in RBI & Income Tax Act
1) Most people travelling abroad are taxpayers who will have to pay TCS from tax-paid income and block for one year +
2) TCS @ 20% provisions will also apply if you swipe your credit card to buy coffee on your next foreign holiday
3) TCS rule may lead to cash flow issues for high-net-worth individuals (HNIs)
4) No interest on Refund will be earned on TCS for full year you will get interest only from 1 April next year, if you file your Income Tax Returns
5) This move shall hurt Foreign Tourism and Encourage Domestic Tourism
6) This shall also reduce funds going out of India for buying Property or Shares as 20% TCS would apply
7) The new rule is Applicable from July 1, 2023 and You can consider TCS Paid as your Advance Tax Liability
8) TCS rule may lead to cash flow issues for high-net-worth individuals (HNIs)
9) Lower rate of 5% TCS is applicable for Education or Medical Treatment
10) International credit card transactions will also attract TCS at the rate of 20% from July 1 The TCS rate till June 30 is 5%
Government should provide more clarity on how the tax authorities would distinguish between international purchases on the Internet and credit card spending abroad
Source: @nsitharaman @FinMinIndia
