The Indian government has recently announced a relaxation in the Tax Collected At Source (TCS) rules for international transactions made using debit or credit cards. Starting from July 1, 2023, individuals conducting international transactions up to Rs 7 lakh will be exempt from the 20 percent TCS levy. This exemption will also exclude these transactions from the Liberalised Remittance Scheme (LRS) limits of $250,000 per annum.
Background and Rationale
The government’s decision to relax the TCS rules on international transactions aims to alleviate the burden on individuals conducting small transactions and avoid procedural ambiguities that may have arisen from recent amendments to the Foreign Exchange Management Act (FEMA). It is important to note that this relaxation applies only to transactions made by individuals and does not extend to transactions charged to institutional or corporate credit cards.
Exclusion of Small Transactions from TCS and LRS Limits
Under the new rules, any individual using their international debit or credit cards for transactions up to Rs 7 lakh per financial year will be excluded from the LRS limits and will not attract any TCS. This exemption aims to prevent the imposition of taxes on small transactions and provide relief to individuals who frequently travel abroad or engage in other permissible international expenditure.
Continuation of Beneficial TCS Treatment
The existing beneficial TCS treatment for education and health payments will continue unaffected by the new relaxation. This ensures that individuals making payments for education and healthcare purposes will not be subjected to the TCS levy, regardless of the transaction amount.
Importance of Accountability
While the government has relaxed the TCS rules for small transactions, Finance Secretary TV Somanathan emphasized the need for accountability in larger transactions exceeding the LRS limits. The intention is to ensure that individuals comply with the prescribed limits and to implement taxation measures for significant transactions under the LRS scheme. This step is seen as a reasonable approach to maintaining transparency and preventing misuse of funds.
Expert Opinions and Suggestions
Former Secretary of Finance, SC Garg, welcomed the withdrawal of international credit card spending from the LRS scheme and suggested further rationalization of the LRS policy. Tax experts have also commented on the relaxation, noting that the exemption provides relief but some business travelers may seek higher limits. It is advised that individuals familiarize themselves with the revised rules and explore alternative options for international transactions to mitigate any concerns.