Foreign travel packages will be more expensive to book beginning July 1, 2023. The tax collected at source (TCS) rate for overseas remittances under the Liberalised Remittance Scheme (LRS) has been increased from 5 per cent to 20 per cent in Budget 2023.
As a result, TCS on remittances for booking overseas travel packages will increase from the existing 5 per cent to 20 per cent. The Ministry of Finance has recently asked the Reserve Bank of India (RBI) to look into the aspect of bringing credit card payments during foreign tours under the central bank’s LRS to ensure that such expenses do not escape tax collected at source.
While tabling Finance Bill in the Lok Sabha last month, Finance Minister Nirmala Sitharaman said, “It has been represented that payments for foreign tours through a credit card are not being captured under the Liberalised Remittance Scheme (LRS) and such payments escape tax collection at source (TCS).”
“The RBI is being requested to look into this to bring credit card payments for foreign tours within the ambit of LRS and tax collection at source thereon,” she added.
If RBI brings credit card payments for overseas tour packages under LRS, then all the transactions done through credit cards are likely to attract TCS at 20 per cent.
Bringing credit card transactions under the ambit of LRS will not be an easy task, said experts. Some transactions for the purposes like education and medical expenses remain outside the purview of this higher 20 per cent TCS. The key question is to identify the transactions which would attract the levy of TCS and those transactions which do not, Ankit Jain, Partner, Ved Jain & Associates. It will be an arduous task for banks to keep track of each and every transaction.
“This is even more complicated since in some cases since the same merchant can have different types of transactions, few of which may attract a levy of TCS and some of them won’t. With so many international merchants being involved, such categorisation would require changes in the credit card system itself,” Jain said.
Meanwhile, Credit card users should keep all the necessary documentation, such as invoices, receipts, and bank statements, to prove that their foreign tour payments were made under LRS and comply with all the regulatory requirements.
The information on the TCS deposited will be available in one’s Form 26AS. The credit card user must ensure that the amount in Form 26AS reconciles with the credit card statement, experts advised. The credit card user should also verify the PAN that is updated in the bank’s record so that they don’t lose out on credit for the same, added Jain.
Further, card users need to be mindful of their credit card limit as they will need to keep a buffer of 20 per cent for TCS, Jain said. Otherwise, credit card users might have to pay extra for overspending on their credit cards.
October 1, 2020, international debit card transactions (including dynamic currency conversion transactions) and bank load/reload transactions on foreign travel cards will be subject to LRS. If you use your Forex card to buy overseas tours, you will be charged a TCS of 20 per cent.
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