20% TCS on international credit card usage: Know 5 key takeaways

The Indian government along with the Reserve Bank of India has made a change that is likely to affect how credit cards are used outside India.

The Central government notified amended rules under FEMA, bringing credit card spending outside India under LRS, effective July 1, 2023.

This means that these transactions will now be regulated by the LRS and will have a 20% tax collected upfront.

Experts suggest that the implementation of the 20% TCS rule might decrease the value of transactions made with international credit cards.

Expanding the LRS and Implementing TCS: Know 5 key points

1. These changes will now allow the use of international credit cards for expenses during visits outside India under the Liberalised Remittance Scheme (LRS).

2. Previously, the LRS only covered debit cards, forex cards, and bank transfers, but credit card usage abroad was not included.

However, with immediate effect, this amendment brings credit card transactions outside India within the scope of the LRS.

3. These transactions will now be subject to a higher tax collection at source (TCS) rate, as announced in the 2022-23 Budget.

According to Prakash Gadia, Managing Director of Resurgent India, foreign exchange spending on personal expenses, gifts, and medical treatment will now have a ceiling of approximately Rs 2,06,30,150 (Indian Rupees) due to the new notification.

However, until July 1, a TCS rate of 5% will apply to these transactions, except for those related to medical and education sectors.

4. You should know that Liberalised Remittance Scheme allows Indian residents to send up to $250,000 (roughly over Rs 2 crore) abroad per year without needing prior approval from the Reserve Bank of India.

5. Previously, the use of international credit cards was not considered within this limit. However, the tax collected at source may cause cash flow problems for some taxpayers as the refund will only be available after the ITR processing.