Tax Collected at Source (TCS) on International Payments through Credit Cards

• The Government of India has recently issued a notification increasing the tax collection at source on foreign payments at the rate of 20% from the previous rate of 5% on payments made in international trips using credit cards with effect from 01 July 2023.

• The TCS collected must be deposited to the account of the Government and would be available to the individual in reducing his/her personal income tax liabilities.

• However, it may be noted that higher rate of TCS on the following payments is not applicable:

• Payments for Medical purposes;
• Payments for Education purposes; and
• Expenses by employees in overseas business trips

• Separately, it is worthwhile to note that the usage of credit card has been bought into the purview of calculating the limit for Liberalised Remittance Scheme (LRS) of $ 2,50,000.

• Previously, foreign payments via credit cards were not covered in the limit of LRS. With this insertion, if any individual’s payment exceeds the limit of $ 2,50,000 per annum together with other covered payments, then such person would be required to obtain RBI approval on any further foreign payments.

• The followings payments were covered in LRS prior to the notification:
  1. Private visits to any country (except Nepal and Bhutan)
  2. Gift or Donation
  3. Going abroad for employment
  4. Emigration
  5. Maintenance of close relatives abroad
  6. Travel for business, attending a conference or specialized training or for meeting expenses medical expenses, or check-up abroad, or for accompanying as an attendant to a patient going abroad for medical treatment/check-up
  7. Expenses in connection with medical treatment abroad
  8. Studies abroad
  9. Any other current account transaction
  10. International payments through credit cards

Thus, with the latest amendment, international payments through credit cards are also covered.