credit cardImage Credit source: File Photo
If you pay with a credit card to buy anything abroad, then you should know about some important rules. Because the government has recently changed the Foreign Exchange Management Act (FEMA) rules for credit card transactions abroad. Credit card spends outside India have been brought under the Liberalized Remittance Scheme (LRS). From July 1, credit card transactions done overseas will be subject to a higher rate of Tax Collected at Source (TCS) at 20 per cent.
This change, implemented in collaboration with the Reserve Bank of India (RBI), has an impact on individuals who often do international transactions. According to sources, earlier the rate of TCS on expenses under LRS was lower and was applicable only on package tours. However, the new amendment in Budget 2023-24 has increased the TCS rate to 20 per cent without any limit, which does not cover education and medical treatment expenses.
Currently, the LRS limit is $250,000 (around Rs 2 crore), and any remittance above this amount requires approval from the RBI. Individuals making substantial spends on international transactions will now need to ensure compliance with regulations and avoid violating any of the criteria.
Credit card purchases will attract 20% TCS
According to the new rule, 20 percent TCS will now be levied on any foreign credit card purchases except for education and medical purposes. This change not only affects tour packages but also self-employed foreign trips. For example, if you book a museum entry ticket for 100 Euros in Paris using your credit card from India, you will have to pay 20% TCS on that amount. Similarly, expenses like buying Starbucks latte or using Uber while traveling abroad will also attract 20 per cent TCS. Even subscription payments to international magazines made through credit cards will be subject to the new tax rules.
read this also – India will overtake China and US to become the king of auto sector, this is the plan
Government changed the rules with the help of RBI
The Central Government in association with the RBI has amended the LRS rules to include International Credit Cards. From July 1, 2023, a TCS charge of 20 percent will be levied on international credit card purchases. as it falls under the LRS limit of US$ 2,500,000. However, there is no clarification yet on whether the minimum transaction limit is applicable on credit card purchases abroad. If TCS is implemented on transactions below a certain value, such as less than $100, it could have a significant impact on the spending habits of individuals abroad.
