On May 16, 2023, a new notification changed existing rules from the Government of India and the Reserve Bank of India, bringing International Credit Card transactions under the ambit of the Liberalized Remittance Scheme (LRS). Under the terms, all use of credit cards issued in India for payments abroad was supposed to be taxed at 20%, meaning that every spend of USD 1 would have USD 0.2 also deducted towards taxation and paid to the treasury against your PAN number.
GoI restructures rules for international spending again.
In a new about turn, the same week the rules were issued, the Government of India’s Ministry of Finance has advised that the first INR 7 Lakhs (USD 8,400) spent in a financial year on a debit or credit card will not count under the LRS quota. So, no tax collection at the source will be applicable too.
The new clarification states,
Concerns have been raised about the applicability of Tax Collection at Source (TCS) to small transactions under the Liberalized Remittance Scheme (LRS) from July 1, 2023. To avoid any procedural ambiguity, it has been decided that any payments by an individual using their international Debit or Credit cards upto Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS.
Existing beneficial TCS treatment for education and health payments will also continue.
This should put to bed most of the concerns around most common folk being included in the taxation for their tickets. The problem is this limit might get used up quickly when booking tickets for a family to fly abroad or paying for rooms. In this case, allocating the spending across the family is an idea to get around the limit. However, if you are a high roller, continue to expect to pay 20% after spending the first USD 8,400 in a year.
Bottomline
Credit Card and Debit Card spending, at least for the first INR 7 Lakhs (USD 8,400), will not be accounted for under the LRS window of USD 250,000 per head. From then on, one must pay the 20% Tax Collected at Source for every spend. How this works out in practicality needs to be seen. However, for now, most common folk buying books and sneakers are spared from the trouble of keeping track.
What do you make of the now amended LRS window and the rules concerning 20% TCS on these spends here on?
Liked our articles and our efforts? Please pay an amount you are comfortable with; an amount you believe is the fair price for the content you have consumed. Please enter an amount in the box below and click on the button to pay; you can use Netbanking, Debit/Credit Cards, UPI, QR codes, or any Wallet to pay. Every contribution helps cover the cost of the content generated for your benefit.
(Important: to receive confirmation and details of your transaction, please enter a valid email address in the pop-up form that will appear after you click the ‘Pay Now’ button. For international transactions, use Paypal to process the transaction.)
We are not putting our articles behind any paywall where you are asked to pay before you read an article. We are asking you to pay after you have read the article if you are satisfied with the quality and our efforts.
Hey Ajay,
Thanks for this. I know it’s all up in the air currently, but if you have some insight into the following questions, would appreciate it.
1. Do foreign currency transactions on CC between April 1 – May 15 get covered under the 7 lac LRS limit (without 5% TCS) that is in place until 30 June? or since the first government notification came on May 16, do only foreign currency CC transactions from May 16 – June 30 get covered under the 7 lac LRS limit?
2. In the 2nd government notification shared on 19 May where they clarified the May 16 notification, they introduced a (new) 7 lac limit on intl CC use which would not fall under the LRS quota and hence the TCS collection.
—– Is this 7 lac limit separate for just intl CC use or does it include other modes too e.g. investment in US stocks?
—– Is the start date for this considered to be 1 April 2023 or May 16 2023 or May 19 2023 or July 1 2023?
—- (Asked already before) Is this 7 lac limit per CC or per bank (multiple cards in 1 bank) or per PAN?
Thanks,
Aditya
@Aditya, My take
1) Forex transactions effective the date May 16 should be affected, and nothing done before that will be touched.
2) The 7 Lakh limit is valid across CC and DC usage. For other stuff, it should count per the LRS usage anyways (which is why the limit was created, right?)
3) Start Date should be July 1, but not clear for now
4) The last one we need to see the new clarified version to find out more.
Hey Ajay,
Thanks for this. I know it’s all up in the air currently, but if you have some insight into the following questions, would appreciate it.
1. Do foreign currency transactions on CC between April 1 – May 15 get covered under the 7 lac LRS limit (without 5% TCS) that is in place until 30 June? or since the first government notification came on May 16, do only foreign currency CC transactions from May 16 – June 30 get covered under the 7 lac LRS limit?
2. In the 2nd government notification shared on 19 May where they clarified the May 16 notification, they introduced a (new) 7 lac limit on intl CC use which would not fall under the LRS quota and hence the TCS collection.
—– Is this 7 lac limit separate for just intl CC use or does it include other modes too e.g. investment in US stocks?
—– Is the start date for this considered to be 1 April 2023 or May 16 2023 or May 19 2023 or July 1 2023?
—- (Asked already before) Is this 7 lac limit per CC or per bank (multiple cards in 1 bank) or per PAN?
Thanks,
Aditya
Is this 7 lac limit per bank or per individual? How will the credit card bank know if I have already spent the limit on another credit card with a different bank?
It still doesn’t answer questions about reimbursement for corporate expenses. Eg, if you pay significant $$ on your personal card for corporate cloud, travel expenses and get reimbursed. How does one report this as a business expense to the card company.
I think these rules are going to favour foreign tour operators over domestic ones. Similar to how Angel tax rules were exempted on FDI thereby penalising domestic angel investors.
@Manish Singh, when they clarify, we will clarify too! 😉
For a long time there is a big hype by Indians that Rupee is going to replace US $ in international trade, some even suggesting that Rupee would become freely convertible currency. But this new rule of 20% TCS and other confusion in rules shows how mistaken our optimists are. Indians are going to learn soon enough how difficult these changes will be for common banks in India. As a PIO living abroad having some current income in India I experience enormous problems when dealing with human beings in Indian banks, IncomeTax Department and Indian Government even though online working is smooth. All employees in these offices have limited knowledge of complicated rules and seldom attend to emails from NRIs and PIOs. Most cannot write a few lines in English.
So please calm down and watch how these changes are actually implemented. Similarly it is going to take a long time for Rupee to replace $ and even trade in Rupees with 18 countries. Demonitisation of Rs2000/- note shows up weakness of Indian cash.
nice