International Debit, Credit Card Spends Of Up To Rs 7 Lakh A Year Exempt From 20% TCS
The government partially rolls back the move that had triggered concerns of adding burden on genuine taxpayers.
Small payments made on international debit or credit cards up to Rs 7 lakh in a financial year will be excluded from 20% tax collected at source, in a partial rollback of a move that had triggered concerns about adding burden on genuine taxpayers.
TCS on small transactions under the Liberalised Remittance Scheme will be beyond Rs 7 lakh per financial year and will continue to extend the existing beneficial TCS treatment for education and health payments, according to a clarification by the Finance Ministry on Friday.
The government earlier scrapped Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules 2000 on Tuesday. That meant a 20% tax would be collected at source starting July 1, 2023 for international purchases overseas on credit cards (barring medical and educational payments), making them more expensive.
The change in rule was aimed to bring credit card spending outside of India under the ambit of the Liberalised Remittance Scheme . The initial notification was received with criticism as it meant that any credit card purchase overseas would attract TCS.
Payments by debit cards have been treated under LRS even earlier, but an exemption under erstwhile Rule 7 meant expenditures through credit cards were not accounted for under the specified LRS limit. The present LRS limit is at $2,50,000.
"The differential treatment between debit cards and credit cards needed to be removed in the interest of uniformity and equity in the treatment of modes of withdrawal of foreign exchange and for capturing total expenditures under LRS for prudent foreign exchange management and to prevent by-passing of LRS limits," the ministry had said in an earlier release.
Finance Secretary TV Somanathan said that there is no intention to inconvenience people on smaller transactions, while speaking to CNBC.
When an individual is paying taxes in accordance to their income, this TCS can be adjusted with advance tax at every quarter, TDS and self-assessment tax, he said.
The extent of impact is a temporary effect on personal transactions, as it can be adjusted when taxes are filed, Somanathan said.