April is the month wherein most of the HNI (High net worth individuals) and wealthy people either go abroad for a family vacation or send money outside India for investment and while they are outside India they use International credit card for making all the payments.
Till now no tax was getting collected when payment was being made on International trips through credit card but TCS was getting collected if payment was made through debit card or money was sent outside India through banking channel.
To remove such a difference Ministry of Finance have made changes in LRS scheme under FEMA and now any payment through such credit card would also be covered under LRS scheme.
Further, Finance Act, 2023 has made amendment in Income tax act to increase the rate of TCS from 5% to 20% and such TCS shall be applicable on any amount of remittance. This amendment will be applicable from 01.07.2023. Till 01.07.2023, TCS for LRS will be applicable at 5% if total remittance exceeds Rs. 7 lakhs.
Bringing the payment from credit card under LRS makes it a level playing field for payment through credit card and debit card.
However, bringing such an amendment in the middle of the year has brough in a fear among tax individuals as many have already exhausted their LRS limit and now if they make any payment it will attract 20% TCS which is a big amount.
Now Ministry of Finance has issued a circular that any payment by credit or debit card upto Rs. 7 lakh will not be covered in the LRS limit. Relevant extract of the notification is as under:
“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.
The necessary changes to the Rules (Foreign Exchange Management (Current Account Transactions Rules), 2000) will be issued separately.”
Hence, reading this one could say it is a relief and TCS shall not be charged on credit card payment but this is not a 100% relief. As per the Press release by Ministry of Finance, it says that payment by credit or debit card upto 7 lakh will not be covered under LRS. Hence, any international payment above 7 lakh with credit/debit card will be covered under LRS and then liable for TCS at 20%.
Further, people are even complaining about such high rate of TCS should not be charged for foreign remittances as it would create huge amount as refund.
Who will be affected by such scheme of TCS?
People who were using credit card during foreign trips.
Employees using corporate credit card in their individual name.
People making online payment for purchase of software using credit card.
Who will collect TCS?
Banks or card company through which you are making the payment shall charge such TCS in your bank account/ card and make it’s payment to government.
How to claim refund of such TCS deposited?
Person who’s TCS has been collected can claim credit of such TCS while filing his/her TCS return and claim refund.
In Finance Act, 2023 government has also increased the TCS rate on foreign tour package.
To read notification by Ministry of Finance for change in FEMA rules CLICK ME.
To read Press Release by Ministry of Finance for increasing limit for foreign remittance by credit/ debit card CLICK ME.
You can book phone consultation/ assistance online with expert as mentioned below:
To book ITR filing with experts CLICK ME.
To book phone consultation with experts for any Income tax related matters CLICK ME.
To book consultation for Faceless Assessment with experts CLICK ME.
To book phone consultation with experts for GST related matters CLICK ME.
To book general phone consultation with expert CLICK ME.