It’s the holiday season and many Indians are packing their bags and heading off for holidays abroad. However, they may need to relook their travel budget soon. A recent amendment to the Foreign Exchange Management rules (FEM (CAT) Rules, 2000) is all set to play spoilsport, particularly if you are using your credit cards for overseas spends.
All international transactions made using credit cards when outside India have been brought under the RBI’s Liberalized Remittance Scheme (LRS), which permits Indian residents to send up to $250,000 in a financial year abroad, without prior approval from the central bank. This has come into effect from May 16, 2023, as per a notification by the Ministry of Finance in the Gazette of India.
And by extension, such spends beyond a transaction value of Rs 7 lakh will now come under 5 percent tax collected at source (TCS). This rate is applicable only up to June 30, 2023. To make matters worse, from July 1, 2023, these credit card transactions will attract a higher TCS rate of 20 percent with no minimum threshold.
On the purchase of overseas tour packages, currently, a TCS of 5 percent is levied. From July 1, 2023, this will be hiked to 20 percent. Gautum Nayak, Partner, CNK & Associates LLP says that TCS is applicable whether the payment for the tour package is made in Indian rupees or not.
Brace up for higher upfront international travel costs
Simply put, the latest amendment means that you will have to set aside an additional 20 percent of your intended foreign remittance amount – meant to pay for travel and shopping expenses abroad, for instance – from July 1, 2023.
Unlike TDS (tax deducted at source) which gets levied on income (salary, interest income etc.), TCS gets deducted on certain expenses – with the tax authority intending to keep track of them. The TCS deducted can be claimed only at the time of filing your income tax returns. But until then, this money is blocked.
Taking the example of international travel, Parijat Garg, a digital lending consultant says, “Assuming a spend of Rs 1 lakh per passenger, for a typical family of 4, this may mean blocking nearly Rs 80,000 (Rs 20,000 per person) for 9-12 months. This would put more budgetary pressure on middle class families aspiring to travel abroad for holidays.”
How to claim TCS
To claim TCS, you will need a TCS certificate provided by the collector or deductor at the time of deduction. This certificate can be used during your income tax return filing process to claim the TCS credit. While filing income tax returns, provide the TCS details in the appropriate section of the tax return form. This typically includes the TCS amount, the TCS certificate number, and other relevant information.
The taxpayer can claim the TCS credit against their total tax liability, that is, tax payable. The TCS credit reduces the overall tax liability or can be refunded if the TCS amount exceeds the tax liability.
Remember, the deductor is responsible for issuing TCS certificates, to the taxpayer. These certificates contain details of the TCS amount collected. Once you receive the certificate, verify the details carefully to ensure the accuracy of the TCS amount reported. Any discrepancies should be resolved with the deductor. If there are discrepancies or mismatches, it may require additional effort to rectify the details and claim the correct TCS credit.
To ensure a smoother process of adjusting TCS while filing income tax returns, it is advisable to maintain clear communication with the deductor, keep records of TCS certificates and other relevant documents, and seek professional advice if needed. Being proactive in resolving any discrepancies or issues can help streamline the process of getting a refund
The operational process of how this TCS will be charged on credit card spends is still unclear says Gupta. He further points out that cancellations, refunds, cashback in a forex transaction may lead to more tax-related disputes, unless managed with deft use of technology. According to Agarwala, the TCS could possibly reflect in your credit card statement as an additional charge on your international spends (which are shown under a separate head from domestic credit card spends).
