Liberalized Remittance Scheme (LRS)

Navjot Singh

Navjot Singh

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economictimes.indiatimes.com

Foreign trip booking: Credit card users may soon have to pay 20% TCS on forex transactions

If RBI brings credit card payments for overseas tour packages under LRS, then all the transactions done through credit cards are likely to attract TCS at 20 per cent. If you often use a credit card to book foreign tour packages, here are the key things that you need to keep in mind.
economictimes.indiatimes.com economictimes.indiatimes.com

Starting from July 1, 2023, you will have to shell out more to book foreign tour packages. Budget 2023 has raised the tax collected at source (TCS) rate for foreign remittances under the Liberalised Remittance Scheme (LRS) from 5 per cent to 20 per cent.

"This is even more complicated since in some cases since the same merchant can have different types of transactions, few of which may attract a levy of TCS and some of them won't. With so many international merchants being involved, such categorisation would require changes in the credit card system itself," Jain said.
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Additional amendments to the Union Budget 2023 passed by the Lok Sabha | The Financial Express

As part of the Finance Bill, 2023 approved by the Lok Sabha, it has now been proposed to increase the TCS rate on all payments made under the LRS from 5% to 20% without any minimum threshold (except a threshold of INR 7 lakhs for remittances made for education or medical treatment). It is also proposed to include credit card payments within the ambit of LRS for the purpose of TCS. This is likely to have a big impact on numerous online payments made by individuals since any payment made via a credit card to foreign vendors (such as for hotel and airline bookings, gaming, subscriptions to software/magazines/memberships etc.), will be subjected to TCS at 20% irrespective of the amount paid. In every such case, individuals will need to claim a credit for such TCS in their tax returns resulting in increased administrative compliance and cash flow issues.
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Centre defers plan to levy 20% tax on purchases made abroad using credit cards

The decision was taken to give banks more time to prepare their systems, the finance ministry said.
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The plan to collect 20% tax on overseas spending was announced by the Centre on May 16 and was to be implemented from July onwards. It will now be applicable from October 1.

The Ministry of Finance said that this is being done to give adequate time to banks and card networks to put the required technical infrastructure in place.
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