Understanding 20% TCS on International Credit Cards
1. The Finance Ministry on 16th May, notified the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023, to include international credit card payments in the LRS. Effectively, any remittance beyond $2.5 lakh or its equivalent in foreign currency would require approval from the RBI.
2. According to the notification, the Finance Ministry, in consultation with the RBI, has omitted Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, thus effectively including Forex spending through international credit cards under the LRS.
3. Earlier, the usage of international credit cards (ICCs) for making payments for fulfilling expenses during travel outside India was not included in the LRS limit.
4. As per Section 206C of the Income Tax Act, 1961 tax collection at source (TCS) is applicable on foreign remittance under LRS. Finance Act 2023 increased the TCS Rate to 20% with effect from 1st July 2023.
5. This effectively means that TCS will be applicable on usage of international credit cards with effect from 16th May 2023. Up to 30th June 2023, the TCS rate shall be 5% and from 1st July, 2023, the TCS rate shall be 20%.
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