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From 1st July, 2023, you will have to pay 20% TCS on your international credit card use if it exceedes Rs.7 lakhs in a financial year. TCS, Tax Collected at Source, is a tax collected by the seller from the buyer and deposited to the government. Till 30th June, the TCS rate is 5%.

In an earlier circular, the government has mentioned that all international credit card use will attract a 20% TCS.

However, the Finance Ministry on Friday said, “To avoid any procedural ambiguity, it has been decided that any payments by an individual using their international Debit or Credit cards up to Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS.”

This change establishes an equal upper limit of Rs. 7 lakhs, which currently applies to international educational and medical expenses.

However, you will be able to claim it back during ITR filing.

Here’s a snapshot of the events:

• The TCS on Liberalised Remittance Scheme was 5%.
• Currently, the scheme has a limit of $250,000, which is around ₹2 crore. Individuals need approval from RBI for remittance above this limit.
• The use of debit cards, forex cards and bank transfers fell under the scheme.
• The FY2023-24 Budget increased the TCS rates from 5% to 20%.
• Overseas tour packages and funds remitted under LRS (other than for education and medical purposes) came under this revised rate.
• International (other than medical and education-linked sectors) credit card transactions was included under the LRS ambit.
• As per an earlier circular, you had to pay 20% TCS on your international payments through credit cards.
• Now, you only need to pay the 20% TCS if the total transactions in a financial year exceedes ₹7 lakhs.

Let us look at how the update will impact different circumstances. We are considering the 20% TCS on international remittances that will come into effect on 1^st July, including the use of credit cards.

Vacation

This new update will make your international vacations expensive.

Let us assume you have taken a tour package for your European vacation. You have to pay 20% TCS on the package value of ₹ 10 lakhs, i.e. ₹2 lakhs.

This will increase the cost of your tour package to ₹12 lakhs instead of ₹10 lakhs. Moreover, you might have to pay more on GST and other charges.

The travel planner will collect the TCS from you and deposit it to the government.

Now, whether you have taken a package or not, when you make purchases such as a museum ticket, taxi rides, food and drinks through your credit card, you might have to pay 20% TCS if the total transactions exceeds ₹7 lakhs.

The new update does provide a little relief to people. However, you have to be very mindful of the transactions and plan your vacations accordingly.

Your credit card issuing bank will charge the 20% TCS on transactions above the limit and deposit to the government.

Education and medical cases

In the case of education loans, TCS of 0.5% is applied to remittances made for foreign education for amounts exceeding ₹7 lakhs. This provision has remained unchanged in this year’s budget.

However, if there is no education loan, the money parents send abroad will attract a 5% TCS if the amount is above ₹7 lakh. This provision existed before this year’s budget and has remained unchanged.

But, as the TCS is now revised to 20%, parents have to prove that the money is being used for educational purposes to get the benefit of the lower rate of 5% for amounts above ₹7 lakhs.

Tuition fees, dormitory fees, lab fees, exam fees, books and stationery, and university hostel fees can be easily linked to education and will come at a lower rate. However, it might be difficult to make the connection if your children stay in a shared apartment. Moreover, other expenses where the connection could not be made will fall under the revised TCS rate of 20% above ₹ 7 lakhs.

The situation will be similar for medical cases as well.

Conclusion

International vacations that exceed ₹ 7 lakhs might become costlier as most people make international purchases through credit cards. It is to be noted that the maximum ₹7 lakh threshold is for the entire financial year. So, if you make two or more international vacations or trips, you might easily exceed the limit.

Moreover, the 20% TCS will be applicable on international holiday packages.

The cost of education and healthcare-related costs that can’t be directly linked to these sectors will also come under the higher rate.

So, it is important to plan for international visits in a proper manner.

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