How will 20% TCS affect your foreign trip from July 1? A breakdown

If you are planning on international travel from India post-June, then get ready to have 20% more cashflow than your actual budget. This is because the Indian government is now levying 20% tax collected at source (TCS) on every transaction you make overseas via whatever method. The only exemptions are if you are spending on education or medical expenses. 

So, what happens under the new Liberalised Remittance Scheme (LRS)? 

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

• Back in February 2023, during the Union Budget, Finance Minister Niramala Sitharaman announced 20% TCS on foreign remittance. 
• It meant that sending money abroad or making investments or purchases through debit cards, forex cards, bank transfers, and the stock exchange was going to cost 20% more. 
• On May 16, the Finance Ministry issued a notification stating that credit card transactions will also be brought under the new LRS ambit. Earlier, credit card use was exempt under the changes and also the 20% TCS. 
• Now, the use of any payment or transaction method from credit, debit, or forex cards to bank transfers internationally will cost 20% more in the form of TCS. 
• The new rules come into effect from July 1. The only way to bypass the charges is if you have a bank account, credit card, or debit card issued in a foreign country or if you have friends or relatives who can pay with their foreign accounts for you. 

What will your international travel look like now?

His Total Spends are say ₹2.5 Lakh

Total Spends/Bill - ₹2.5 Lakh
20% TCS - ₹50,000

Total Amount - ₹3 Lakh

(Note, Your bank may charge additional Forex Markup, GST when you use Credit Card Abroad)

— Ravisutanjani (@Ravisutanjani) May 17, 2023

• Let's say you are travelling to Canada post July 1. You spent a total of Rs 5 lakh booking flight tickets, hotels, and currency exchange for some cash when you arrive. 
• The Rs 5 lakh expenditure will actually cost you Rs 6 lakh in total. It doesn't matter whether you use your debit card or credit card or Forex card. 
• The extra Rs 1 lakh is the 20% TCS you will pay. You may see this 20% extra charge while making your booking. But if you don't see this charge upfront, your bank will charge that extra 20% later (in the case of credit cards). 

It needs to be noted that there might be additional charges such as GST, convenience fees, and more that will be added on top of the final expenses. So, it is likely that the Rs 5 lakh expenses will cost more than Rs 6 lakh including the 20% TCS. Moreover, interest on your credit outstanding including the added 20% TCS may be calculated if a credit card is used. 

• There is a possibility that if you are booking through Indian travel agents, you will this 20% extra charge upfront. For example, booking a flight worth Rs 50,000 will cost you Rs 60,000. 
• However, there is also a possibility that overseas travel agents may reflect the price for the same flight ticket as Rs 50,000 and you pay only Rs 50,000 upfront. But the extra Rs 10,000 will be charged later by the bank you are using.  
• So, while comparing prices, it may seem like overseas travel agents are less expensive than domestic ones. But that's really not the case. It needs to be seen whether the 20% TCS will hit domestic travel agents disproportionately than foreign travel agents. 
• If you are on a tour abroad and if you spend even $10 on Uber using your Indian bank account, it will cost $12 in total.   
• Now, let's say you purchased something from Amazon USA or subscribed to a UK magazine. All of this will cost 20% extra than the actual price not including the GST or other charges. 
• If you are travelling abroad for work, then if you use your personal card you will be charged with 20% TCS. It is unlikely that the 20% TCS will be reimbursed by your company since this is something that you can reclaim while filing your Income Tax Returns. 
• In case you are using your company card, then as an employee you won't have to carry the 20% charge burden.

Yes, you can claim the expenses back:

• As mentioned above, the 20% TCS you spend can be reclaimed. There's the argument that the 20% TCS is not an additional cost since you can get it back. However, the problem arises due to the steep 20% charge and the need for a higher cash flow. 

All those defending 20% TCS because one can get refunds should hand over their entire income to the IT department, and then get weekly pocket money from the government for their expenses.

— Abhishek Baxi (@baxiabhishek) May 18, 2023

• If you are someone who travels abroad frequently in a year, then these extra charges are a burden you will have to carry and account for an entire year. 
• The government wants to track all foreign transactions with the TCS; however, even the earlier 5% charge could have done the job of tracking transactions even if the new notification brought credit card transactions under the ambit. 
• So, everytime you swipe your Indian credit, debit, or forex card abroad, even if only for Rs 100, you will be paying a total of Rs 120. The same is true for online transactions from foreign merchants using Indian credit, debit, or forex cards. 

For students studying abroad, it needs to be noted that if you are getting money from home, those expenses need to be shown as for education purposes only. This may not include living expenses (more clarity required). Only the amount remitted through an education loan will be exempt from the 20% TCS. The rest will be charged as per the old charge of 0.5%.

On the other hand, if your expenses abroad are going to be more than Rs 2 crore in a year, you will need to get prior approval from the government.