Your credit card payments overseas will attract a 20% TCS from July 1

From July 1, your bank card transactions overseas will get costlier. Not solely will you need to pay a better tax collected at supply (TCS) of 20 per cent on every of those transactions, however additionally, you will must restrict the spending to beneath $250,000 in a monetary 12 months.

The Centre has amended the International Change Administration Act (FEMA) guidelines, bringing worldwide transactions by way of bank cards beneath the Liberalised Remittance Scheme (LRS). With this, worldwide spending utilizing bank cards will appeal to a 20 per cent TCS. The brand new rule will come into pressure on July 1.

Here’s what the brand new rule means.

What’s LRS?

The scheme, launched in 2004 by the RBI, permits resident Indians to freely switch as much as $250,000 per monetary 12 months overseas. That is additionally relevant to transfers by minors. For quantities above $250,000, the person must take prior approval from the RBI.

What’s the new rule for abroad bank card spending?

From July 1, the funds made by way of bank cards overseas might be counted beneath the LRS restrict. It’ll even be relevant on web purchases overseas by way of bank cards, even for those who place the order from India. This consists of in-dollar subscriptions to international magazines and journals too.

These transactions will appeal to a TCS of 20 per cent. This tax price was elevated from 5 per cent beforehand to twenty per cent in Union Funds 2023-24. The mechanism of how TCS on abroad bank card spending might be collected is unknown.

In case you spend $100 on shopping for one thing overseas utilizing your bank card, you have to to fork out $120 now, with $20 going to the federal government as tax collected at supply or TCS. 

Nevertheless, taxpayers will be capable to declare refunds of the TCS paid whereas submitting their tax returns. This extra $20 paid as TCS might be adjusted in opposition to your tax legal responsibility.

How is the brand new rule totally different from the older one?

Until now, transactions made overseas by way of bank cards weren’t part of the LRS restrict. They weren’t counted within the $250,000 restrict. They didn’t appeal to a further TCS.

However now, prospects should monitor each invoice and be aware of the spending restrict on the following international journey.

Are there any exceptions?

The LRS restrict doesn’t apply to remittances for training or medical remedy.

Will 20 per cent TCS be relevant on funds on on-line purchases?

If the transactions are made by way of worldwide bank cards on on-line platforms primarily based out of the country, they are going to appeal to a 20 per cent TCS. For instance, purchases made on Amazon.com might be subjected to a 20 per cent TCS however not these purchased by way of Amazon.in. 

It’ll additionally embrace subscriptions to international magazines and journals by way of worldwide bank cards.

What do specialists say?

Consultants business Commonplace talked to consider that this step will want higher monetary planning from travellers as international journeys could get costlier. It might additionally result in a fall in India’s outward remittances.

“Though a person can be eligible to regulate the TCS in opposition to his general tax legal responsibility, he’ll require extra funds/ money “in hand” on the time of remittance(s) overseas, contemplating a 20 per cent deduction every time (which can, resultantly, be a sum of a considerable quantity). It will invariably require a revamp of monetary planning of people planning to spend cash abroad, henceforth,” stated Harish Kumar, associate at Luthra and Luthra Legislation Places of work India.

“People who regularly journey overseas for leisure or business functions could expertise a better monetary burden because of the elevated tax price on their remittances…The upper TCS price may discourage people from making bigger remittances for functions apart from training or medical remedy. It might result in a lower within the amount of cash despatched overseas for numerous causes comparable to funding, buy of belongings, or different private expenditures,” stated Maneet Pal Singh, associate at IP Pasricha & Co.

He added that it may additionally affect funding selections, international collaborations, and general business actions.

Geetanshu Bhalla, director of the regulation agency The Digital Compliance, stated that the Centre should think about suspending the brand new rule’s implementation.