Home / Media  / Quotes

Worried about new LRS and TCS rules on international credit cards?

The overseas expenses will increase by 20 percent due to new tax collected at source (TCS) rule on international credit card, hence affecting the travel budgets. Though individuals are generally excited about their travelling plans, the new liberalised remittance scheme (LRS) cap and TCS hike will surely make them concerned about the use of credit cards in other countries.

So, it makes sense to look at other available options too apart from credit cards when travelling abroad:

Physical currencies

According to Sandeep Sehgal, Partner-Tax, AKM Global, a tax and consulting firm, travellers may be now encouraged to use physical currencies more rather than using credit cards internationally.

Physical currency refers to the amount of cash in the form of paper notes or coins which is used to conduct transactions between consumers and businesses. Travellers are allowed to purchase foreign currency notes/coins up to $3000 per visit.

Balance amount can be carried in the form of store value cards, travellers cheque or banker’s draft.

Prepaid forex cards

Additionally, prepaid forex cards can be used to pay for the expenses in a local currency abroad. Travellers can withdraw local cash from an ATM, just like a credit or debit card. It can also be used to pay for online transactions in stores abroad. The process is similar to using a credit card online, and the advantage is that travellers don't have to pay cross-currency charges.

Decoding the new TCS rule

The RBI has extended the coverage of its LRS to include spending in foreign currency through international credit cards (ICC). This means that residents can now remit funds abroad, up to a maximum of $2.50 lakh per annum, without the authorisation of the central bank, regardless of whether the expenses are for personal or business purposes. However, this will result in a TCS impact.

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.

According to Jyoti Prakash Gadia, Managing Director at Resurgent India, this will impose restrictions on foreign travel expenses while an individual is abroad and is aimed at scrutiny and conservation of such expenses.

How to claim TCS refund?

Users who still use international credit card can claim the '20% TCS' at the time of Income Tax Return (ITR filing) as it is a direct tax levy. However, experts say that this may result in cash flow issues for some taxpayers. The fund will be locked until the time refund is done after processing of ITR.

Sunil Badala, KPMG India on CNBC-TV18 nobody was tracking the charges on credit card earlier it’s a big change, not only for individuals, but also merchants if you are in India & the payment is in dollars, you have to pay 20% TCS Girish Vanvari, Transaction Square on CNBC-TV18 this amendment is not a surprise Additionally, experts point out that those not having an income will not get the refund too.

"Majority of the population aren’t taxpayers and government will incur extra cost to refund money

Please click here to view the full story on CNBCTV18.