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The government on Wednesday dropped plans to levy TCS on overseas payments made through international credit cards and said such expenses will be included in the Liberalised Remittance Scheme (LRS) of the RBI.
The Finance Ministry has also deferred by three months the implementation of a higher Tax Collected at Source (TCS) rate of 20% on expenditures made under LRS and overseas tour packages till September 30. The new rates will come into effect from October 1.
In a statement, the Ministry said 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, notification through which credit card expenses were brought under LRS.
The Ministry also clarified that “transactions through international credit cards while being overseas would not be counted as LRS and hence would not be subject to TCS”.
This means that the government has dropped plans to levy TCS on international credit card spending.
The Budget 2023-24 had raised TCS rates on LRS and foreign tour packages from 5% to 20%, effective July 1.
With Wednesday’s announcement of deferment of a higher TCS rate, LRS spending above ₹7 lakh would attract 20% TCS from October 1.
On the purchase of overseas tour packages, a TCS of 5% will be applicable on payments up to ₹7 lakh. Above the threshold, 20% would be levied from October 1.
Currently, overseas tour packages and LRS spending above ₹7 lakh attract 5% TCS.
Also, a TCS of 5% is levied on expenses exceeding ₹7 lakh towards medical treatment and education.
For those availing loans for overseas education, a lower TCS rate of 0.5% would be levied above the ₹7 lakh threshold.
“The increase in TCS rates; which were to come into effect from 1st July, 2023 shall now come into effect from 1st October, 2023,” the Ministry said.
It further said legislative amendments to give effect to changes will be taken up in due course.
The necessary changes to the Rules (Foreign Exchange Management (Current Account Transactions Rules), 2000) will be issued separately. Also, Frequently Asked Questions (FAQs) shall be issued to clarify various practical issues, the Ministry added.
Nangia Andersen LLP Partner Sandeep Jhunjhunwala said mentioning the unpreparedness of the IT infrastructure to deal with new TCS provisions on credit card spending, banks and financial institutions had made representations to the government to defer the LRS-TCS implementation timelines.
“Increase of TCS rates on LRS for purposes other than for education and medical treatment had been concerning taxpayers ever since the Finance Bill 2023 was tabled,” Jhunjhunwala said.