No TCS on LRS transactions upto Rs 7 lakh via international debit, credit cards

The government has on Friday relaxed the rules that mandated 20 percent Tax Collected At Source (TCS) on international transactions using debit or credit cards. It said that any international transaction done by an individual using his/her debit or credit card upto Rs 7 lakh will not attract the 20 percent levy. Such transactions, the government has clarified, will be exempt from the $250,000 per annum Liberalised Remittance Scheme (LRS) limits. This relaxation does not extend to international transactions charged to institutional or corporate credit cards.

"To avoid any procedural ambiguity, it has been decided that any payments by an individual using their international Debit or Credit cards upto Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS," an official statement said.

"Existing beneficial TCS treatment for education and health payments will also continue," it added.

TV Somanathan, Secretary of Finance clarified that it was never the intention to impose taxes on small transactions. However, he emphasised the need for accounting LRS usage beyond a certain threshold. He pointed out that there have been numerous cases of individuals exceeding the LRS limits, and it is necessary to tax large transactions under the scheme. Somanathan stated that covering such transactions and implementing taxation measures is a legitimate aim and a reasonable step to ensure accountability.

Watch full exclusive interview of Finance Secretary TV Somanathan with Shereen Bhan on the LRS relaxation, ₹2000 banknote withdrawal and impact of RBI surplus transfer on India’s finances

SC Garg, Former Secy, Finance said, "There was no reason for bringing international credit card spending under the Liberalised Remittance Scheme (LRS). The original 20 percent was also unjustified. It is good that the government has now withdrawn the credit card from LRS. It is also advisable that the government also rationalises the policy on the LRS transfers."

However, this relaxation shall not be available for any remittances made from India. "The relaxation from TCS has been given only for overseas spending using International Debit or Credit cards if the threshold limit of Rs 7 lakhs per financial year is not breached. This relaxation shall not be available for any remittances made from India. Thus, any remittance for investment, ticket booking, purchase of goods, payment of subscription fees, etc., shall continue to be subject to TCS at 20 percent," Naveen Wadhwa, DGM, Taxmann said.

Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP said, "Exclusion of cases involving payments by an individual using international Debit or Credit cards upto Rs 7 lakh per financial year from LRS limits is a welcome move and would bring some relief. Frequent Business travelers may however seek higher exemption limits even though the base protection from TCS if expenses are borne by employer is available."

The relaxation comes after the government’s earlier decision to include all international credit card transactions under the LRS limit, and make a 20 percent TCS on such transactions mandatory caused a lot of confusion among users. There was also concern that such a levy would make international transactions like foreign travel more expensive.

The government has also clarified that this relaxation will avoid any procedural ambiguity that may have arisen from the earlier amendments to the Foreign Exchange Management Act (FEMA). The existing beneficial TCS treatment for education and health payments will continue as is.

It is worth noting that in the Union Budget 2023, the government announced that international credit card expenses would be subject to a higher TCS rate of 20 percent, effective from July 1.