Need more clarity on taxing international spending of over Rs 7 lakh: Bankbazaar CEO

The uproar over TCS or tax collected at source for international credit or debit card transactions has finally subsided after the Indian finance ministry clarified that there will not be any TCS on spending up to Rs 7 lakh ($8,470).

"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 ($8,470) per financial year will be excluded from the LRS limits and hence, will not attract any TCS," the ministry said.

Nevertheless, international spending exceeding Rs 7 lakh ($8,470) will be taxed at the rate of 20 per cent with effect from July 1, the ministry added.

Add WION as a Preferred Source

The clarification came days after the Indian government decided to bring overseas credit card spending under Liberalised Remittance Scheme (LRS). Debit card spending was already part of LRS.

The announcement came as a much-needed relief for international travelers, who often use credit cards to make foreign currency payments. But that was not before people criticized the levy as "tax terrorism" and sought its rollback.

But the reader will be wrong to think that this TCS policy is new. In fact, it is a part of the Liberalised Remittances Scheme (LRS), which was formulated under the Foreign Exchange Management Act, 1999, or FEMA. Under LRS, Indian residents are allowed to send up to $250,000 per year (April to March) outside India.

"TCS has been applicable on foreign remittances since 1961, and under the LRS since 2004. Over the years, there have been several changes in how much TCS is deducted and in what situation. Prior to the latest amendment, forex instruments, foreign currency, Forex cards, and debit cardsattracted a TCS," said Adhil Shetty, CEO, Bankbazaar.com.

Shetty told wionews.com that the only exemption was credit cards, which hasnow been brought into the ambit of TCS under LRS. This he argued will remove the differential treatment between debit cards and credit cards and capture the total expenditures under LRS.

"Up to Rs 7 lakh, everything is the same. But if you are spending over Rs 7 lakh internationally, through a single or multiple credit card, how will that be tracked and taxed? We need some clarity on that matter," noted Shetty.