Spending money overseas through credit card does not come under the liberalised remittance scheme limit yet, but it may change in the near future. And if it does, credit card users may have to cough up 20 percent tax collection at source (TCS).
As per a media report published recently, bringing credit card spend under the LRS is now on the government’s radar.
For the uninitiated, the finance ministry in May 2023 had brought credit card spending under the LRS limit, while raising the rate of TCS at the same time.
However, it was announced on June 28 that overseas spending using credit cards will be put on hold in order to give time to the banks to streamline their requisite IT systems.
“It has also been decided to give more time for the implementation of the revised TCS rates and for inclusion of credit card payments in LRS,” the finance ministry had said then.
Cut to July 2024, government is seen to be re-introducing credit card spend as part of LRS, reported Hindu.
Let us understand exactly TCS and LRS in the context of taxation?
What is tax collected at source?
Tax collected at source is the sum collected by the seller from the buyer at the time of sale so that it can be deposited with the tax authorities.
The TCS for foreign remittances under LRS was raised to 20 percent in Budget 2023 from the earlier rate of 5 per cent. This included international travel, sending money overseas, and other remittances.
This new tax rate came into force on Oct 1, 2023 which removed the threshold of ₹7 lakh for triggering TCS on LRS.
These changes, however, are not applicable in case of education and medical expenses.
What are liberalised remittance schemes?
Under the RBI’s Liberalised Remittance Scheme (LRS), all resident individuals are allowed to freely remit up to $2,50,000 in each financial year abroad for any permissible current or capital account transaction or a combination of both.
This scheme was introduced on February 4, 2004, with a limit of $25,000. The LRS limit was later revised in stages consistent with prevailing macro and micro economic conditions.