Vivek Jalan
Overview
The Tax Collected at Source (TCS) framework on foreign remittances and overseas spending under the Liberalised Remittance Scheme (LRS) witnessed a major shift after amendments to Section 206C(1G) of the Income Tax Act became effective from 1st July 2023. The move expanded the TCS net to foreign expenditures made through international credit cards by removing Rule 7 of the FEMA (Current Account Transaction) Rules, 2000, thereby bringing such spends under regulatory scrutiny. While the government positioned the measure as a tax tracking mechanism for high-value foreign spending, concerns over compliance burden and public backlash led to relaxation for international spending up to ₹7 lakh. This article explains the legal amendment, applicability of TCS on international credit cards, exemptions, revised rates, and its practical implications for overseas travellers and taxpayers.
In order to apply TCS on foreign remittances and foreign spends under LRS, an amendment applicable from 1st July 2023 is was made in Section 206C(1G) of the Income Tax Act wherein TCS @20% is leviable on remittances for foreign spends.
The payment for these foreign spends can also be made vide international credit cards which was not under RBI scanner apropos Rule 7 of FEMA (Current Account Transaction) Rules 2000. Now, by deleting this Rule all foreign spends even by international credit cards will also be liable to TCS @20% or any other rate as per Section 206C(1G). Spends vide International Debit Cards and Travel Cards would continue to be liable to TCS.
A process may possibly be laid for this wherein the holder of international credit card, before making any payment, would be asked by a pop-up message on the nature of the transaction and when he does so, TCS would be automatically triggered and instead of say $10,000 and extra $2000 is collected. It may be just like an online payment made for say spending on hotels abroad wherein while your spend value is $10,000, but a final payment approval of an excess amount is sought before payment is processed.
It is important to note that while TCS is merely advance collection of tax on a payment made, the purpose is to track whether people making high-value remittances reflected proportionately high income in their tax returns.
Further, after widespread backlash, the CBDT has decided to exempt international spending of up to Rs 7 lakh from TCS of 2%, but the saga is far from over still.
CAclubindia
