Date Extended: No TCS on Credit Card Spending From October, 20% TCS on Foreign Tour Spending

On Wednesday, the government decided against imposing TCS on international credit card payments made to foreign countries, instead announcing that these costs will be covered by the RBI’s Liberalized Remittance Scheme (LRS).

The introduction of a higher Tax Collected at Source (TCS) rate of 20% on expenditures made under LRS and abroad travel packages has also been postponed by three months by the Finance Ministry until September 30. From October 1, the revised pricing will be in effect.

According to a statement from the ministry, the government has decided to delay the implementation of its May 16, 2023 notice that placed credit card costs under LRS in order to allow banks and card networks enough time to put the necessary IT-based solutions in place.

The government also explained that “transactions made overseas using an international credit card would not be counted as LRS and would not be subject to TCS.”

This indicates that the administration has abandoned plans to impose TCS on transactions made using overseas credit cards.

Beginning on July 1, the TCS rates for LRS and international travel packages have increased from 5% to 20% as a result of the Budget 2023–24.

With the deferral of a higher TCS rate announced on Wednesday, LRS expenditure above Rs 7 lakh will begin to attract 20% TCS on October 1.

A TCS of 5% will be applied on payments up to Rs 7 lakh when purchasing international travel packages. 20% would be added to amounts over the threshold starting on October 1.

Currently, LRS expenditure above Rs 7 lakh and international travel packages incur 5% TCS.

Additionally, a TCS of 5% is charged on medical and educational costs that exceed Rs 7 lakh.

A reduced TCS rate of 0.5% will be applied to borrowers who are taking out loans for international education beyond the Rs 7 lakh level.

The hike in TCS rates, which was scheduled to take effect on July 1, 2023, will instead begin on October 1, 2023, according to the government.

Additionally, it said that legislative adjustments to implement the revisions will be considered in due course.

Foreign Exchange Management (Current Account Transactions Rules), 2000, required amendments will be published separately.

The ministry noted that frequently asked questions (FAQs) will be published to address a variety of practical concerns.

Sandeep Jhunjhunwala, a partner at Nangia Andersen LLP, said that banks and financial institutions have petitioned the government to postpone the LRS-TCS implementation dates, citing the lack of readiness of the IT infrastructure to handle new TCS rules on credit card use.

Since the Finance Bill 2023 was introduced, the increase in TCS rates on LRS for uses other than education and medical care has worried taxpayers, according to Jhunjhunwala.