Amendment in RBI circular

Inclusion of all Credit card payments for International Transaction under Liberalized Remittance Scheme (LRS). Rule 7 of Foreign Exchange Management (Current Account Transactions), Rules, 2000 stands omitted.

New Rule

Tax Collected at Source (TCS) at 20% on international usage of credit / Debit / Forex cards or Foreign exchange exceeding INR 7 lakhs, from July 1, 2023.

Who will be affected?

• Individuals, who use their credit cards when travelling overseas or for payments for global goods and services. Debit cards were already under TCS.
• High Net Worth Individuals (HNIs) investing in assets viz., stocks, bonds, and real estate abroad
• Overseas Tour and travel packages, and
• Gifts to non-residents.

Several payment methods and amounts on International Transactions now under the ambit of LRS.

How can one plan the impact of TCS new rule on International Transaction

• Spending on the International Transactions – beware of the LRS limits and TCS rates to avoid breaching the caps and incurring additional tax liabilities.
• Budget the TCS part also in the cost while planning for the expenditure to be done on international transactions.      
• Monitoring the LRS Limit – one needs to keep the track of LRS Limits and to ensure that it does not exceed US$ 250,000/-

NOTE

• TCS is not a final tax
• Tax payers can claim credit on the TCS amount against his / her tax liabilities, advance taxes etc
• Clarification awaited on treatment of business travel reimbursements w.r.t. TCS

Our view

• The change will have a significant impact on the individuals using credit card transactions as the limit on LRS on one hand is US$ 250,000 and whereas under the Section 206C (1G) chargeability section of TCS clearly mentions the limit for the transaction up to INR 700,000/.
• Now, an individual limit is set up to INR 7 Lakhs for spending through credit/debit/forex card or other methods, on international transactions if they want to avoid TCS. People will now have to set out their budgets accordingly in order to plan foreign travel
• Though the move is beneficial for the government as they aim to curb tax evasion and increase accountability, the same comes with increased compliance burdens and operational challenges

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