20% TCS on credit card use abroad has Internet fuming. How will it affect you?

A late-night notification on Tuesday, May 16 by the Union Finance Ministry brought credit card payments overseas under the Liberalised Remittance Scheme. It means that Indian credit card transactions made abroad will now be costlier as users will have to pay a steep 20% tax collected at source (TCS).

The changes will come into effect from July 1. Till then, the current TCS charge of 5% is applied. 

The e-Gazette notification dated 16th May 2023 omits Rule 7 of the FEM(CAT) Rules, 2000. Here are the Frequently Asked Questions #FAQs w.r.t. Tax Collection at Source (TCS) on foreign remittance through the Liberalised Remittance Scheme. @RBI (1/2)👇 pic.twitter.com/CLJyHQh5ub

— Ministry of Finance (@FinMinIndia) May 18, 2023

Chaos on Twitter

The news of higher taxes on credit card use abroad has not gone down well with people, who are flooding Twitter with memes and criticism. As of May 18, "20% TCS" is trending on Twitter, with many questioning the reasoning behind levying such steep taxes. 

While Indian planning for foreign travel using a credit card ( 20% TCS)

Indian Government be like pic.twitter.com/dS0PRdyruM

— MemeOverlord (@MemeOverlord_kk) May 18, 2023

This new 20% TCS (Tax Collected at Source) on credit card spend in foreign currency in the name of catching tax offenders or stopping people from remitting more than LRS limit of US$ 250000/- per year seems ill conceived idea.
Earlier TCS was 5% & credit card spend was exempted.…

— Aveek Mitra (@aveekmitra) May 18, 2023

Many highlighted how the 20% TCS on credit card use overseas will actually hamper the "ease of doing business" for Indians.

TCS is being introduced for collection of data on transactions and not as a tax. Banks can be asked to share data of Credit card transactions. TCS as proposed is not a good idea from the perspective of "ease of business"

2/N

— Ajay Rotti (@ajayrotti) May 17, 2023

What does it mean?

• During Union Budget 2023 in February, Finance Minister Nirmala Sitharaman hiked the TCS rate from 5% to 20% under the Liberalised Remittance Scheme. 
• It means that any money sent abroad via bank transfer, forex cards, purchase of property or booking of a tour package is subject to 20% TCS, except for education and medical purposes. 
• However, earlier credit card transactions weren't included under the ambit of LRS. But with the May 16 notification, they are also officially subject to the 20% TCS. 
• Now, any type of payment done through a credit card, be it for flight or hotel booking or food expenses abroad, will be subject to 20% TCS.
• Furthermore, under the notification, those who wish to spend over $2,50,000 (approx over Rs 2 crore) will need to get prior permission. 

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Why is the government charging higher taxes?

The government says that charging TCS will help them track high-value overseas transactions.  

Can you claim it back?

Yes. While filing for the annual ITR, you can claim back the 20% TCS deducted. However, on Twitter people complained the new tax changes have only made foreign trips more expensive and cumbersome.

So, what's the best way to manage expenses while abroad? Since any foreign remittance be it in the form of stock investment, credit card use, forex card use, etc is now subject to 20% TCS, it is better to count the charges as extra expenses in the budget, which can only be claimed while filing for ITR. You are only in luck if you are travelling abroad before July 1. 

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