What Does It Mean for Travellers If Credit Card Transactions Abroad Failed to Attract TCS?

The government said on Wednesday that foreign credit card transactions would no longer be subject to tax collected at source (TCS) since they will no longer be included in the Liberalised Remittance Scheme (LRS). This is a major relief for consumers who use international credit cards.

On May 16, 2023, the government proposed raising the charges on international credit card purchases from 5% to 20%. It was declared on June 29, 2023, that the current situation will be maintained with credit cards being free from TCS. The increase of TCS rates on international transfers from 5% to 20% will also be postponed until October 1, 2023, according to the Centre. The increase was supposed to go into effect on July 1st, 2023.

 

 

According to TaxAaram founder and chartered accountant Mayank Mohanka, “Until further notice, international credit card expenditure by people, including purchases of foreign travel packages while abroad, would continue to be excluded from the LRS limit and TCS. Indian travellers who use their foreign credit cards abroad find comfort in the maintenance of the status quo. However, it reinstates the TCS practise of treating overseas purchases made with prepaid foreign exchange cards, international debit cards, and direct foreign exchange purchases differently from those made with international credit cards.

 

The finance ministry announced its choice, saying it would “give more time for the implementation of the revised TCS rates and for the inclusion of credit card payments in LRS.”

 

The LRS plan enables people to send up to $2.50 lakh overseas annually in an effort to streamline foreign transactions. Beyond this point, they will need prior RBI (Reserve Bank of India) permission.

 

International Credit Card Use

 

TCS is a tax that the seller withholds from the customer on certain products and services. Transfers of funds and costs like purchasing assets and travelling abroad are subject to this tax.

 

An individual travelling abroad and spending Rs 1,000,000 would have to pay Rs 20,000 as an upfront TCS of 20% of the entire amount spent, bringing the total outlays to Rs 1,20,000.

 

However, holders of foreign credit cards are grateful for the exemption from the finance ministry. Visa, a provider of credit cards, claims that when used with certain travel partners, its credit cards give extra incentives and savings. Additionally, clients may convert their purchases into equivalent monthly instalments (EMIs) with an interest-free credit term of at least 45 days for up to 12 months or longer.

 

Financial adviser Arnav Pandya, the founder of Moneyeduschool, advises using both credit cards and prepaid foreign exchange cards while travelling overseas. For establishments like hotels, which often exclusively take credit cards, credit cards are a need. There are banks and fintech businesses that provide forex cards with low markups on foreign currency, which lowers expenses. However, it’s a good idea to have some cash on hand since not all businesses take cards. It’s important to keep in mind that the exemption for credit cards may only be temporary since banks have been told to improve their systems, which might result in credit cards being subject to Tax Collected at Source (TCS) in the future.

 

It is crucial to examine the terms and conditions before using an overseas credit card to determine whether there is a foreign currency transaction charge. If there is such a fee, it is best to look for a card that doesn’t impose it.

 

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