20% TCS on Credit Card: Foreign trip is going to be expensive, know what is the rule of 20% TCS on credit card? The rule will be applicable from July 1

You must have heard a lot of talk about TCS in recent times. On May 16, the government issued a notification under the Foreign Exchange Management Act, informing about the levy of 20% TCS on international credit card spends in foreign currency. The ICC expenditure was brought under the Liberalized Remittance Scheme of the RBI. In such a situation, today through this report we will tell you what is TCS? Why was it increased to 20%, since when is it applicable and most importantly how can we get tax benefits from it?

First of all, let’s start with the basics i.e. this is TCS, what the hell?

TCS stands for Tax Collected at Source. This is a type of tax, which is levied on some items of the government. This is paid by the buyer to the seller and the seller has to deposit it with the government. Tax is deducted at the time of purchase of goods, hence it is tax collected at the source.

What is TCS in foreign remittance transaction?

According to the order issued by the government, 20 percent TCS will be levied on the expenditure incurred through credit card abroad. This tax can be charged from you when you send money abroad. Sending money does not mean sending it to a person. It can also mean traveling abroad, buying property (shopping included) and investing abroad. LRS or Liberalized Remittance Scheme is there to help you do international transactions with ease. Under the LRS before the Finance Budget 2023-24, the TCS was 5% for remittances above Rs 7 lakh.

Rules amended under FEMA

While notifying the Foreign Exchange Management Amendment Rules 2023 on behalf of the Ministry of External Affairs, it was said that the expenses incurred abroad through international credit cards will also be included in LRS. Explain that under LRS, a person can send a maximum amount of $ 2.5 lakh abroad in a financial year even without the permission of the Reserve Bank.

What changed after budget 2023

These TCS have now been increased from 5% to 20% for all remittances except those relating to education or medical treatment. The new TCS will be applicable from 1 July 2023. In such a situation, the question must be arising in your mind that what is medical and education remittance out of the purview of TCS? The answer is – no. 5% tax will still be levied for the amount above 7 lakhs.

Why has TCS on foreign remittances been increased to 20%?

There can be many reasons for this. While most of these are related to raising revenue which the government can do through tax collection. The Government of India expects us to spend more of our money traveling within India than traveling abroad. Outward foreign remittances were at an all-time high in 2022. Especially at a time when the rupee was at its weakest. It could also be to ensure that those spending money abroad file returns in their home countries only.

How can the new 20% TCS from July 1 affect us?

Let us understand this with the help of an example. Let us assume that you need to invest US$ 2 million for the purpose of investing in the US stock market. In this case the TCS comes to 4,00,000. And if the same amount is being remitted for education or medical treatment, then TCS of 5% will be applicable for the total amount exceeding 7 lakhs. This means you will have to pay 5% on 13 lakhs (20 lakhs – 7 lakhs), which comes to 65,000.

How can I get tax benefit from this?

You can adjust your entire tax liability by adjusting the amount deducted by the banks as TCS. This TCS can be claimed as income tax refund, or credit can be availed while filing income tax return or for computing your advance taxes. Bank provides a TCS certificate at the time of deduction, which is used while claiming TCS in your ITR (Income Tax Return) filing