Use of credit cards, while sitting at home in India to buy products from global websites with payment in foreign currency will be part of Liberalised Remittance Scheme (LRS), Finance Ministry clarified. Such transactions above a certain threshold will attract Tax Collected at Source (TCS) even now.
This clarification is critical as Finance Ministry has put the proposal in abeyance an amendment to include transactions through International Credit Cards while being overseas under LRS. It means such transactions would not be subject to TCS. The Ministry said, “To give adequate time to Banks and Card networks to put in place requisite IT-based solutions, the Government has decided to postpone the implementation of its 16th May 2023 e-gazette notification,” the Ministry said adding thatthe Press Release dated May 19 stands superseded,
Explaining this, the Ministry gave two scenarios. Under the first scenario, if a person is overseas and spends through a credit card, it would not count under LRS and therefore would not attract TCS. However, under scenario two, “If a person uses a credit card while in India for permissible overseas transactions then that would count under LRS and attract TCS if it exceeds ₹7 lakh in a year.” The rate of TCS would be 5 per cent. In other words, status quo has been maintained.
Also read: TCS levy: Credit card holders may have to file declaration with banks
Apart from credit card issue, there is no change on other amendments proposed by the Finance Act 2023, except the date of implementation. For the first ₹7 Lakh remittance under LRS, there shall be no TCS. Beyond this ₹7 Lakh threshold, TCS shall be 0.5 per cent (if remittance for education is financed by an education loan), 5 per cent (in case of remittance for education/medical treatment), and 20 per cent for others.
Commenting on the clarification on overall development, Russell Gaitonde, Partner with Deloitte India said while one can continue to debate whether the increased TCS rate of 20 per cent is very high, and ought to have been lowered, at least the Government in its Wednesday’s press release has made unequivocally clear that it is committed to increasing the TCS rate from 5 per cent to 20 per cent, therein indirectly “signalling that it wishes to discourage the sizeable outflows that are being annually made overseas by Indian residents through the LRS route.”
Shruti K.P, Partner with INDUSLAW said the government should reconsider the proposed rate hike of 20 per cent above ₹7 lakh, post September 30, 2023. Also. “It puts unnecessary cash flow pressures for taxpayers, while not serving any additional purpose for the government, as far as garnering tax revenues is concerned since ultimately the TCS is available as credit to the taxpayer,” she said