Govt defers higher TCS on Overseas Spending to Oct 1, 2023
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At the same time, the finance ministry also said that transactions conducted via international credit cards while abroad will not be counted under the Liberalised Remittances Scheme (LRS). As such, these transactions would not be subject to TCS even after October 1.
"To give adequate time to Banks and Card networks to put in place requisite IT based solutions, the Government has decided to postpone the implementation of its May 16 2023 e-gazette notification. This would mean that transactions through International Credit Cards while being overseas would not be counted as LRS and hence would not be subject to TCS. The Press Release dated May 19 2023 stands superseded," the ministry said in a statement.
The clarification from the finance ministry comes after weeks of confusion regarding the applicability of the higher TCS of 20 percent on certain transactions.
In March, Finance Minister Nirmala Sitharaman had said in the Budget session of Parliament that the Reserve Bank of India (RBI) had been asked to bring credit card payments for foreign tours under the purview of the LRS as such payments escape tax collection at source.
"It has been represented that payments for foreign tours through credit cards are not being captured under the Liberalised Remittance Scheme," Sitharaman had said on March 24.
"The Reserve Bank is being requested to look into this with a view to bring credit card payments for foreign tours within the ambit of LRS and tax collection at source thereon," she had explained.
The move came after the Union Budget for 2023-24 had proposed a hike in the tax collection at source for overseas packages to 20 percent from 5 percent.
The May 16 notification of the government had caused plenty of confusion. Sources had told Moneycontrol that banks' reporting systems were not in a position to make the distinction between overseas credit card spends of different categories such as for education and medical treatments and others.
As per the latest clarification from the finance ministry, if a person is overseas and spends through the credit card, it would not count under LRS and therefore would not attract TCS. Further, if a person uses credit card while in India for permissible overseas transactions, then that would count under LRS and attract TCS if it exceeds Rs 7 lakh in a year.
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