Some relief for Indians travelling abroad – credit card payments will not attract TCS

• The implementation of a higher TCS rate of 20% on overseas remittances under the LRS, specifically for expenses related to tours, has been postponed by three months till October 1.
  
• For international tour packages TCS applied will be 5% up to ₹7 lakh, and 20% beyond that irrespective of the mode of payment.
  
• Currently, overseas tour packages and overseas spending of over ₹7 lakh attract TCS of 5%.
  

On Wednesday, the Indian government announced that spending through international credit cards abroad will not be considered as part of the liberalised remittance scheme (LRS), and therefore, will not be subject to tax collected at source (TCS).

Furthermore, the implementation of a higher TCS rate of 20% on overseas remittances under the LRS, specifically for expenses related to tours, has been postponed by three months, and will now be enforced starting from October 1. “The increase in TCS rates, which were to come into effect from July 1, 2023 shall now come into effect from October 1, 2023," the ministry said.

As per the new regulations, there will be no change in the TCS rate for all purposes under LRS, and for overseas travel tour packages, irrespective of the payment method, as long as the amount does not exceed ₹7 lakh per individual per year.

The ministry stated that when individuals purchase an overseas tour program package, the existing TCS will remain applicable. The rate of 5% will apply for the first ₹7 lakh per individual, per year. However, for expenses exceeding this limit, the rate of 20% will be applicable.This means that if you are using a credit card to book an international tour package, you need to pay 5% TCS for a spend up to ₹7 lakh and 20% after that. Currently, overseas tour packages and overseas spending of over ₹7 attract TCS of 5%.

In the Finance Bill 2023, the government had made certain modifications early this year. The rate of TCS was raised from 5% to 20% for remittances made under the LRS, and also for the purchase of overseas tour packages. Additionally, the threshold of ₹7 lakh, which previously triggered TCS on LRS, was eliminated and TCS was applicable from ₹1. However, it's important to note that these changes do not apply when the remittance is for educational or medical purposes. These amendments are now scheduled to come into effect from July 1, 2023.

On May 16, the government had said that international credit card spends will be brought under TCS. However, a few days later the government said that payments made using international credit and debit cards up to ₹7 lakh shall be excluded from LRS. Now, there will be no TCS on international credit card spending.