Tax Collection at Source (TCS) will not be applicable on payments made using international credit cards (ICC) during foreign visits, according to a notification issued by the Finance Ministry on Friday night.
Putting to rest the controversy over the use of ICC, the ministry on Friday amended the Foreign Exchange Management (Current Account Transactions) Rules, 2000, to keep ICC out of the purview of the Reserve Bank’s Liberalized Remittance Scheme (LRS), which Attracts TCS over a threshold. at specified rates.
The notification inserted Rule 7 in the FEM (CAT) Rules, stating “..utilisation of ICC for meeting expenses incurred while on a journey outside India by a person” will not be covered under LRS.
The ministry said in a notification that the amendment will be effective retrospectively from May 16.
This amendment supersedes the Ministry’s notification of May 16 deleting Rule 7 from the FEM (CAT) Rules, thereby effectively including foreign exchange expenditure through ICC under LRS.
Under the LRS, a resident can remit up to US$250,000 per year abroad. Remittances beyond this would require approval from the RBI.
Further, remittances under LRS are subject to TCS. Bringing ICC expenses within the LRS will increase the compliance burden for banks.
After the May 16 change in FEM (CAT) rules, concerns were raised by the public on its impact.
In a statement on June 28, the ministry had said that “in order to give sufficient time to banks and card networks to introduce the necessary IT-based solutions, the government has decided to defer the implementation of its notification dated May 16, 2023.” Is.” The ministry had said, “Transactions through ICC while abroad will not be counted as LRS and hence, will not be subject to TCS”.