Government Exempts TCS on International Credit Cards Payments Abroad

In a recent notification issued by the finance ministry, it has been clarified that payments made using international credit cards (ICC) during foreign visits will not be subjected to Tax Collected at Source (TCS).

The ministry's amendment to the Foreign Exchange Management (Current Account Transactions) Rules, 2000, has excluded ICC from the scope of the Reserve Bank's Liberalised Remittance Scheme (LRS), which previously attracted TCS based on specified rates.

The notification explicitly states that the use of ICC for making payments by individuals while they are on a visit outside India will not be covered under the LRS. This amendment, effective retrospectively from May 16, aims to resolve the controversy surrounding ICC usage and its implications for taxation.

The earlier May 16 notification, which removed Rule 7 from the FEM (CAT) Rules, had inadvertently brought forex spending through ICCs under the purview of the LRS. This created concerns among the public regarding compliance burdens for banks. However, with the latest amendment, ICC transactions made overseas will not be counted as part of the LRS and will, therefore, be exempt from TCS.

Under the LRS, residents of India are allowed to remit money abroad up to $250,000 per year. Any remittance exceeding this limit requires approval from the Reserve Bank of India (RBI). Additionally, remittances under LRS are subject to TCS. By excluding ICC payments from the LRS, the ministry aims to alleviate the compliance burden on banks.

The finance ministry's decision to postpone the implementation of the May 16 notification until banks and card networks have adequate time to establish IT-based solutions was announced on June 28. This delay will ensure a smoother transition and give stakeholders sufficient time to adapt to the changes.

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