Finance Ministry Scraps 20 Per Cent TCS On Foreign Spending Via Cards For Payments Up To Rs 7 Lakh

The ministry said that it has been decided that any payments by an individual using their international Debit or Credit cards up to Rs 7 lakh per financial year will be excluded from the LRS limits

Earlier, the finance ministry had announced that International Credit Cards used for spending outside of India will be put under the aegis of the LRS, which will cause such cards to attract a higher TCS at 20 per cent.

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The central government on Friday said that it has exempted any payments by an individual using their international Debit or Credit cards up to Rs 7 lakh per financial year following bakclash and concerns on the 20 per cent tax collection at source (TCS) diktat for overseas credit and debit card spending. 

“Concerns have been raised about the applicability of Tax Collection at Source (TCS) to small transactions under the Liberalized Remittance Scheme (LRS) from July 1, 2023. To avoid any procedural ambiguity, it has been decided that any payments by an individual using their international Debit or Credit cards up to Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS. Existing beneficial TCS treatment for education and health payments will also continue," the Finance Ministry noted.

Clarification regarding applicability of Tax Collection at Source to small Debit/Credit Transactions under LRS

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— Ministry of Finance (@FinMinIndia) May 19, 2023

The Ministry of Finance on May 16, 2023, through a notification announced that International Credit Cards (ICC) used for spending outside of India will be put under the aegis of the Liberalised Remittance Scheme (LRS), which will cause such cards to attract a higher tax collected at source (TCS) at 20 per cent. The change was announced during the Budget 2023-24. The government had announced to hike TCS rates to 20 per cent, from the current 5 per cent, on overseas tour packages and funds remitted under LRS (other than for education and medical purposes). The new TCS rates will come into effect from July 1, 2023.

Under the RBI's LRS scheme, an individual can remit up to $2.5 lakh annually overseas without the approval of the RBI. Remittances beyond $2.5 lakh or its equivalent in foreign currency would require approval from the RBI.

This announcement raised heckles among Twitter users. Twitterati were captivated by the announcement of a 20 per cent tax collection at source (TCS) on international credit card spending, making it the most popular trending topic on the platform on Thursday.