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If you are planning to use your credit card for international transactions, you might want to know about a new tax rule that will affect your spending. The new rule is called TCS, which stands for Tax Collection at Source. It is a tax that is collected by your bank or credit card company on behalf of the government when you make payments in foreign currency. In this blog post, we will explain what TCS is, how it works, and how you can avoid or reduce it.
What is TCS and why is it imposed?
TCS is a type of tax that is collected by a third party from the buyer of certain goods and services, which is then remitted to the government. The purpose of TCS is to ensure compliance with tax laws and prevent tax evasion.
The government has recently increased the TCS rate for foreign remittances under the Liberalised Remittance Scheme (LRS) from 5% to 20%, except for education and medical purposes. The new rule will come into effect from July 1, 2023.
Although, TCS will not be applied on individual payments up to Rs. 7 lakhs per financial year, using their international debit or credit card.
What is LRS?
The LRS or Liberalised Remittance Scheme, is a scheme by the Reserve Bank of India (RBI) that allows Indian residents to remit up to $250,000 per financial year for any permissible current or capital account transactions. These include private visits, gifts, donations, business trips, medical expenses, education fees, etc.
The government has also amended the Foreign Exchange Management (Current Account Transactions) Rules, 2000 to bring international credit card spending under the LRS. This means that any payment you make in foreign currency using your credit card will be counted as part of your LRS limit and will be subject to TCS.
How does TCS work for credit card transactions?
The TCS will be collected by your bank or credit card company at the time of billing. The bank will collect an additional amount of 20% from your credit card account and deposit it with the government as TCS. For example, if you spend $1000 on your credit card abroad, your bank will charge you $1200 ($1000 + 20% TCS) and pay $200 as TCS to the government.
The TCS will be applicable to all types of credit cards, including forex cards and co-branded cards. It will also apply to debit cards and currency purchases, however, no TCS shall be applicable on individual payments up to Rs. 7 lakh in a financial year. The TCS will not apply to transactions made in Indian rupees or in Nepal and Bhutan.
How can I avoid or reduce TCS?
There are a few ways you can avoid or reduce the impact of TCS on your credit card spending:
- Plan your spending wisely
You can keep track of your LRS limit and avoid exceeding it by planning your spending in advance. You can also use other modes of payment such as cash, traveller’s cheques, prepaid cards, etc. that are not subject to TCS.
- Claim refund or adjustment
You can claim a refund or adjustment of the TCS paid if your total income tax liability for the year is less than the TCS amount. You can file your income tax return and claim the excess TCS as a refund or adjust it against your tax payable.
- Use credit cards for education or medical purposes
The TCS rate for foreign remittances for education or medical purposes is only 5%, instead of 20%. You can use your credit card for paying tuition fees, hospital bills, etc. and save on TCS.
- Conclusion
TCS on credit card is a new tax rule that will affect your international spending from July 1, 2023. It is important to understand how it works and how you can avoid or reduce it. You can also consult your tax advisor or financial planner for more guidance on this matter.
If you are interested in saving even more on your travel and hotel plans, check out the range of IndusInd Bank Credit Cards.
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.
