During Union Budget 2023, the Government shocked everyone when they announced that TCS on international spending is increased from 5% to 20% with no lower ceiling.
After backlash, they made a new announcement regarding TCS. In today’s post, we’ll break down the concept of TCS on foreign remittance.
Also, let’s understand the latest update on TCS on international credit card spending.
Estimated read time: 2 minutes and 40 seconds
Buckle up. Here we go!
What is TCS?
TCS stands for Tax Collected at Source. It is a tax levied by the Indian Government on specific transactions to ensure the collection of taxes at the source itself, i.e., at the time of making the payment.
TCS is an indirect tax, meaning it is collected by a person/entity on behalf of the Government and then remitted to the tax authorities.
Did you know over 3 crore people went abroad for business or as tourists? But out of a population of over 130 crore, only 1.5 crore has paid income tax.
That’s why the primary objective behind implementing TCS is to widen the tax net and ensure greater tax compliance. It applies to individuals and businesses, and the rates and rules vary depending on the transaction type.
TCS on International Payments
During Union Budget 2023, the Government announced that from July 1, 2023; it is increasing TCS from 5% to 20%. Earlier, the TCS was not charged on international credit cards, but now the rules have been changed. TCS of 20% will be charged on international credit cards with no spending limit.
What this meant was that even if you spend ₹100 on coffee on your international trip, your bank will charge you 20% TCS. Instead of ₹100, ₹120 will be debited from your account.
In total, all your foreign spending was about to get expensive because you have to pay an additional 20% to the Government. If you had planned for a foreign trip with a budget of ₹2 lakhs, you would have to save an additional ₹40,000 for TCS.
Yes, the IT department will refund your money if your tax liability is low. But still, your money will be stuck until you file your tax return and receive the refund.
However, there is an exemption for International education and medical spending. At present, under LRS, remittances made for foreign education, via an education loan paid abroad, attract a TCS of 0.5% for the amount transferred beyond ₹7 lakhs. And even for medical treatment overseas, 5% TCS is only charged if the amount is over ₹7 lakhs.
Latest update on TCS on international spends
After a lot of backlash, the Government has relaxed the rules. On May 19, 2023, the Government offered more clarification on TCS on international spending.
For now, international transactions up to ₹7 lakh using debit and credit cards will not be subject to TCS. This ceiling offers relief to many travellers who use their cards to spend on smaller purchases, such as food, local commute, shopping, etc.
But they did not pass this relief on to prepaid forex card – which is generally used by most travellers to save money.
Also, there is no relaxation in your overseas investment. If you are planning to invest in international stocks to diversify, you need to think again. You will have to pay an extra 20% as TCS to invest internationally. We will cover this in detail in our future newsletter. If you haven’t subscribed yet – subscribe now.
There is still a lot of confusion on which type of payments will attract TCS and how the TCS will be deducted. But we found an appropriate table from Mint. This might help you out for now.
* When booked directly with an airline & not through a tour operator, like MakeMyTrip
Remember to share these insights with your buddies.
If you are like us, who likes to analyse a little more or check out content in different formats, well you are in luck. Below you can find some suitable content we found.
Note: We don’t have any affiliation with them. We are sharing links only for educational purposes. The opinions expressed by them belong solely to them and do not reflect the views of Vrid.