Indians using credit cards for international transactions should be ready for paying more taxes. A notification issued by India’s Ministry of Finance has now brought international credit card transactions under the Reserve Bank of India’s liberalised remittance scheme (LRS).
This has paved the way for the government to levy 20 per cent TCS (Tax Collection at Source) on credit card usage outside India. It must be noted that only debit cards, forex cards, and bank transfers were included in the LRS limit earlier.
What are the new credit card rules?
According to the notification released by the government in consultation with the RBI, Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, has been omitted, which effectively brings the usage of credit cards outside India, or for international transactions under LRS.
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After this change, a TCS levy of 5 per cent will come into effect immediately till July 1. And after 1 July, international credit transactions will start attracting 20 per cent TCS.
How will the new credit card scheme affect people?
Let’s understand it with the help of an example. Suppose, a person named “X” goes on a vacation to Maldives, and spends INR 200,000 there using his Indian credit card. Now, the credit card company will generate a bill of a total INR 240,000 on behalf of X and will pay 40,000 rupees (20 per cent of the total amount spent) towards TCS. Later, X can claim the TCS worth 40,000 rupees while filing his income tax return.
Experts say that the new rule could increase the financial obligation of Indian travellers going abroad. Rikant Pittie, Co-Founder, EaseMyTrip, said, “It is essential for Indian travellers to factor in this additional financial obligation while making payments for overseas travel which may increase the overall expenditure for their trip. However, travellers can claim TCS credit while filing their tax return, which means that the net impact on their travel costs will not change.”
Government facing backlash
While some believe that the new credit card rules will discourage tax evasion and encourage compliance, people on social media are criticising the move. Some said it will have ramifications from the perspective of ease of doing business.
A Twitter user named Ajay Rotti tagged Finance Minister Nirmala Sitharaman while saying that the 20 per cent TCS was “too high.” He said, “And 20 per cent is too high notwithstanding all that I have said above. It is clearly a provision that needs a rethink. The proposal to introduce it needs to be dropped. Overseas payments can’t go unnoticed. Agreed. But please don’t throw the baby with the bath water.”