20% TCS will be imposed on credit card expenses in other countries, government changed the rules

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Using a credit card abroad can be heavy on your pocket. The government has changed the rules regarding this. Now whatever you spend with your credit card in other countries, you have to pay 20% Tax Collection at Source (TCS). The government has approved these changes after consulting the Reserve Bank of India (RBI). The new rules will come into effect from July 1.

It was increased to 20% from the existing 5%

 

The Central Government on Thursday amended the rules of the Foreign Exchange Management Act (FEMA). Subsequently, in a notification, the government said that spending outside India through credit cards is brought under the Liberalized Remittance Scheme (LRS). In Budget 2023, the government increased TCS rates on foreign tour packages and LRS to 20% from the existing 5%. The new rate will be applicable from July 1, 2023, except for education and medical expenses. However, you can claim TCS in your tax return.

Can claim credit or set-off

 

The Finance Ministry informed that the amendment in the FEMA Act to bring international credit card expenses abroad under the Liberalized Remittance Scheme (LRS) is aimed at bringing uniformity in the tax aspects of debit and credit card remittances. This will enable ‘Tax Collected at Source’ (TCS) at the applicable rates on the amount spent abroad.

If the person paying TCS is a taxpayer, he can claim credit or set-off against his income tax or advance tax liabilities. In this year’s budget, there was a proposal to increase TCS from 5 per cent to 20 per cent on foreign tour packages and remittances under LRS. The new tax rates will be applicable from July 1. Earlier, the Finance Ministry had notified the Foreign Exchange Management Amendment Rules, 2023 on Tuesday. Under LRS, a person can remit a maximum of $2.5 lakh abroad in a financial year even without RBI’s permission.