20% TCS Tax Alert! Is Your Travel Budget Ready for the Change?

The RBI (Reserve Bank of India) has imposed a 20% tax on international credit card usage for foreign transactios. Starting October 1, this tax, known as TCS (Tax Collected at Source), is set to shake up your travel and shopping budget.

What's TCS?

TCS is a tax collected by sellers of certain goods and services from the buyers. In the context of Foreign Remittance Transactions, it's collected when money is sent abroad. But here's the kicker - sending money abroad isn't just about wiring funds; it includes going on foreign trips, shopping sprees, and purchasing assets abroad.

The Lowdown on LRS:

Before the 2023 Union Budget, TCS under the Liberalized Remittance Scheme (LRS) was set at 5% for remittances exceeding Rs 7 lakh. However, with the recent hike to a whopping 20% TCS, nearly everyone is now subject to this tax, except for transactions related to medical treatment or education.

Breaking Down the 20% TCS for Your Foreign Adventure:

Let's say you're planning an international escapade to 'XYZ' country, and your credit card has a limit of Rs 10,00,000. You decide to use this card for all expenses during your foreign adventure, including hotel bills, shopping, and dining. (Remember, these figures are just for illustration and real-world scenarios may differ after TCS implementation.)

Total Spends: Rs 2,00,000

20% TCS on Total Spends: Rs 40,000

Total Amount Spent: Rs 2,40,000

So, you'll have to cough up that 20% TCS on your credit card spends upfront. However, here's the catch - experts suggest that you can only claim this TCS when filing your Income Tax Return (ITR). Additionally, transaction limits play a role in determining this tax, as explained below.

Pranay Jhaveri, MD - India and South Asia, Euronet, points out, "The TCS revision will significantly impact overseas tour packages and increase the cash outflow immediately for travelers. The tour operator will have to collect 20% of the cost of the overseas tour package from the travelers, irrespective of the travel cost."

Taxing the Rich?

With the amendments in FEMA, credit card transactions now fall under the LRS limit of $2,50,000. Any foreign remittance or purchase beyond this limit would require prior approval from the RBI, a topic that's been buzzing since the 20% TCS announcement.

While the core idea behind this TCS is to curb tax evasion on specific items, some experts believe it might make it relatively challenging for the affluent to spend lavishly overseas, especially when it comes to surpassing the LRS limit. This implies that people may start planning their foreign trips and expenses more cautiously to avoid breaching any rules.

As the government anticipates raking in ₹2800 crore from this tax in the upcoming financial year, it's clear that the days of carefree international credit card swiping are coming to an end.

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