How A 20% TCS On Overseas Credit Card Payments Affects You — BQ Explains

BQ Prime answers some frequently asked questions on a higher TCS on international credit card spends.

<div class="paragraphs"><p>Photo by <a href=";utm_medium=referral&amp;utm_content=creditCopyText">Patrick Tomasso</a> on <a href=";utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a></p></div>
Photo by Patrick Tomasso on Unsplash

It's the last day of your journey through your favourite European destination and you're just checking out of your very expensive hotel room. At the checkout counter, the hotel staff hands you the bill and it is just within the credit limit left on your card. Think twice before swiping that card though.

From July 1, credit card spends toward international merchants will attract a 20% tax collected at source, according to a government notification. International payments made through credit cards will be covered under the liberalised remittance scheme. This means that such payments will be counted within the $250,000 foreign spending limit for resident Indians.

BQ Prime answers some frequently asked questions on how these charges will apply on your payments.

How Does This Increase The Cost Of A Transaction?

This will include both spending done while overseas, or paying for foreign good or services using a credit card. For example, if you spend $100 on a meal while in New York City, or buy a carpet online from Turkey — all of these spends will now attract a 20% TCS.

Is This Applicable For All Use Cases? 

All credit card payments to a merchant abroad, except of health and education, will attract the tax. In case of health, any foreign spends up to Rs 7 lakh does not attract any additional tax. Once the user crosses that threshold, the tax collected at source is set at 5%.

In case of education, where spends worth over Rs 7 lakh are coming through an education loan, the TCS is set at 0.5%. For those spending more than Rs 7 lakh on education through their own means, and not a loan, the TCS is set at 5%.

Corporate Credit Cards Exempt From 20% TCS On International Payments

Who Will This Impact The Most?  

The change will have the biggest impact on high-value customers, who actively use their credit cards when travelling overseas, and it will also impact people who make international payments for global goods and services using credit cards.

So spending while buying your coffee and baguettes will attract the charge. Similarly, you buying the electronic newspaper from an international publisher will attract 20% tax collected at source.  

Who Will Deduct The Tax?

The tax will be deducted by the bank which has issued the credit card. The bank will consequently pass on the tax to the government. 

Can Customers Claim Refunds For The TCS On Credit Cards? 

Yes, a tax paying customer can claim these taxes for a refund.

Why Was This Necessary?

Instances have come to notice where the LRS payments are disproportionately high when compared to the disclosed incomes, according to a clarification issued by the government. Primary impact of these norms will only come on investment in assets such as real estate, bonds, stocks outside India by high net worth individuals and tour travel packages or gifts to non-residents.