In May 2023, steps were put in motion by the Government of India to add a 20% withholding tax to all international credit card transactions made on India-issued credit cards. Per their notification, credit card issuers in India would have to deduct an additional 20% on each non-INR transaction and deposit it as Income Tax, which would be available against your tax filing for adjustment or refund. Then, there was a change to limit transactions up to INR 700K from the collection of tax. This move added a lot of confusion and dismay. And then, for five weeks, we did not hear anything. Now, the timeline and the goalpost have been moved.
The Government of India harmonises Tax Collected at Source from various sources and moves the date of implementation to October 1, 2023
The Ministry of Finance, on June 28, said that the higher Tax Collected at Source (TCS) on overseas spending will now be implemented effective October 1, 2023.
Also, a change of heart has occurred regarding International Credit Card spending when abroad. These transactions will no longer be counted under the Liberalised Remittances Scheme, which means if you present your card outside the country for spending, this 20% withholding tax is no longer an issue. However, this tax withholding will apply to spending on your cards when in India and spent in a non-INR currency.
As per a press release from the Ministry of Finance,
To give adequate time to Banks and Card networks to put in place requisite IT based solutions,the Government has decided to postpone the implementation of its 16th May 2023 e-gazette notification. This would mean that transactions through International Credit Cards while being overseas would not be counted as LRS and hence would not be subject to TCS. The Press Release dated 19th May 2023 stands superseded.
The press release also says,
Threshold of Rs. 7 Lakh per financial year per individual in clause (i) of sub-section (1G) of section 206C shall be restored for TCS on all categories of LRS payments through all modes of payment, regardless of the purpose: Thus, for first Rs 7 Lakh remittance under LRS there shall be no TCS. Beyond this Rs 7 Lakh threshold, TCS shall be
a) 0.5% (if remittance for education is financed by education loan);
b) 5% (in case of remittance for education/medical treatment);
c) 20% for others.
For purchase of overseas tour program package under Clause (ii) of Sub-section (1G), the TCS shall continue to apply at the rate of 5% for the first Rs 7 lakhs per individual per annum; the 20% rate will only apply for expenditure above this limit.
The clarification from the finance ministry comes after weeks of confusion regarding the applicability of the higher TCS of 20% on certain transactions. If you are in India and pay vast amounts of money for international IT services, on your personal credit card, for example, post-October 1, you will get another 20% withholding tax on your account after you have exhausted the INR 700K limit.
As per the latest clarification, if a person is overseas and spends through a credit card issued in India, it would not count under their LRS limits and, therefore, would not attract TCS. However, if a person uses a credit card in India for permissible overseas transactions, that would count under LRS and attract TCS if it exceeds INR 700K in a year.
What are your thoughts on the change of stance for the LRS and withholding tax from the Government of India?
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