In a recent development, the Ministry of Finance has revised its decision regarding Tax Collected at Source (TCS) on foreign transactions. In a welcome move for travellers, credit card transactions conducted abroad will continue to be exempt from TCS. Furthermore, the higher rate of 20 per cent TCS, which was initially scheduled to be implemented from 1 July, will now be applicable from 1 October, but only for amounts exceeding Rs 7 lakh in a financial year. It's worth noting that foreign expenditure on education and health will still attract lower rates, providing some relief to those seeking these services.
What Was The Original Announcement
Earlier this year, Finance Minister Nirmala Sitharaman announced in the Budget 2023 that the TCS rate on foreign transactions would be increased to 20 per cent, extending to payments made for the purchase of foreign tour packages. The earlier limit of Rs 7 lakh was also removed, implying that the 20 per cent TCS would apply to all foreign transactions, except those related to medical or education purposes, starting from 1 July. However, in May, the Ministry of Finance issued a notification bringing international credit card transactions under the purview of the TCS system. This decision has now been reversed.
Impact On International And Domestic Transactions
The Ministry of Finance clarified its stance, stating that the implementation of the 16th May 2023 e-gazette notification has been postponed to allow banks and card networks sufficient time to establish the necessary IT solutions. As a result, transactions made through international credit cards abroad will not be counted as part of the Liberalised Remittance Scheme (LRS) and will not be subjected to TCS. Nevertheless, it's important to note that the Finance Ministry has made a distinction between credit card transactions conducted abroad and those made within India. While credit card transactions made overseas will not attract TCS, international payments made using a credit card within India will be subject to TCS if they exceed the Rs 7 lakh threshold.
How Will It Benefit Travellers
This revised decision by the Ministry of Finance provides a much-needed respite for travellers, ensuring that credit card transactions abroad remain exempt from TCS. It offers greater flexibility and convenience for those exploring international destinations while keeping in mind the financial implications of their transactions.
Cover photo credit Shutterstock
