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The 20% Tax on Overseas Credit Card Transactions That's Emptying Your Travel Funds!"

The government has warned that individuals may need to pay more to deal with the revised "20 per cent TCS rule" announced recently. Effective July 1, 2023, all foreign credit card purchases made outside India will be subject to the Liberalised Remittance Scheme (LRS), which will also carry a higher 20% TCS.

Many changes to tax laws were proposed with the release of the Union Budget 2023–24 in February, one of which was Tax Collected at Source (TCS) for foreign transactions. In May, the TCS 20% issue became a hot topic when the national government, in collaboration with the Reserve Bank of India (RBI), announced a revision to the Foreign Exchange Management Act (FEMA) requirements.

 Explained: 20% TCS on Credit Cards

TCS stands for Tax Collected at Source. It is a form of tax that the vendor collects from the purchaser of its products or services. Sending money, however, refers to various activities.

Having one set-up helps users complete cross-border transactions. Before the Union Budget of 2023, TCS's LRS rate for remittances exceeding Rs 7 lakh was 5%. Everyone will pay this amount due to the 20% TCS increase. Individuals may purchase medical and educational supplies.

 Reduction Of 20% TCS On Your International Vacation or Trip

A person wants to travel abroad to "XYZ" country, and their credit card has a $10,000 limit. The individual ultimately uses this credit card for purchases in that other nation. (Please note that the statistics are hypothetical and are only provided here for clarification. After TCS is applied, a real scenario may differ.)

· Spending scenario: Rs 2,000,000.

· 20% TCS on all expenditures: Rs. 40,000

· Spending total: Rs. 2,40,000

Therefore, the 20% TCS on credit card purchases must be paid in advance. Experts say this TCS may only be claimed while submitting an Income Tax Return (ITR). Depending on the limitations of the transactions, this tax, which is described below, will also apply.

"The TCS revision will significantly impact international tour packages and increase cash outflows for travellers immediately," said Pranay Jhaveri, MD of India and South Asia at Euronet. Regardless of the cost of the travellers' trip, the tour operator must collect 20% of the international tour package price from them.

 Are they taxing the wealthy?

According to the FEMA change, credit card transactions will now be subject to the $250,000 LRS limit. After the "20% TCS" statement, there has also been a discussion concerning the requirement for prior RBI permission for any international transfers or purchases that exceed this cap.

While the primary goal of this TCS is to prevent tax fraud on particular commodities, the rich may now find it more challenging to make significant purchases overseas. Some analysts believe this is particularly true when moving above the LRS limit. This would also require people to plan their international travel and expenditures more carefully to prevent regulation violations.

Experts examine TCS's 20%

While the modification would promote taxpayer responsibility, the higher rate for international remittance tax in India will raise the cost of sending money abroad. The long-term economic impact may be calculated when the TCS modification occurs. Banks and other financial organisations will have to work harder to comply. Taxpayers can use their entire tax payment to qualify for the exemption.

According to investor and author Harsh Madhusudan, "Anything that can be taxed globally can be monitored by definition." What is accomplished by additional TCS on tax-paid money that you later reclaim during tax filing? One owes nothing; TDS is based on what you owe—however, 20%.

Will it harm the Indian credit card industry? Argues Ravisutanjani, former vice president of Testbook, in a tweet. Yes. High-end credit cards, like Infinia, Magnus, and Reserve, once provided excellent rewards for international purchases. Therefore, even after markups and taxes, foreign investments were excellent. But now that 20% TCS on Spending is required, consumers must budget their money correctly.

Ajay Rotti, founder and CEO of Tax Compass, a different tax professional, wrote on Twitter: "Dear @nsitharaman - TCS on credit cards internationally is not something you should do. It affects many business travellers who purchase on the company's behalf. With TCS in the workers' names, it is useless and cannot be in the company's name.

Many analysts believe that the central bank's move to impose a 20% TCS is also intended to strengthen its control over international remittances. This may take some time to navigate. Along with compliance, it may also increase TCS's cash flow and the number of persons subject to this tax.

However, as the central government has yet to approve this revision, experts are awaiting further information on the ramifications of the modification. The 5% TCS regulation is now in effect until June 30.

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