Starting from July 2023, foreign travellers will need to be prepared to pay additional charges during their foreign tours, as a 20% TCS (Tax Collected at Source) will be applicable on credit card transactions for booking a foreign tour package.
Here’s what you need to know
As per the budget announcement of 2023, Finance Minister Nirmala Sitharaman has increased the TCS (Tax Collected at Source) rate for foreign remittances under LRS (Liberalized Remittance Scheme) from 5% to 20%.
During the presentation of the Finance bill in the Parliament, the Finance Minister highlighted that credit card payments made for foreign tours were not covered under the Liberalized Remittance Scheme (LRS), leading to the omission of Tax Collection at Source (TCS) on such transactions.
Sitharaman had instructed the Reserve Bank of India (RBI) to include these credit card transactions for foreign tours under the purview of the Liberalized Remittance Scheme (LRS) and Tax Collection at Source (TCS).
If the Reserve Bank of India (RBI) includes credit card transactions for foreign tours under the Liberalized Remittance Scheme (LRS), consumers will be required to pay a 20 per cent Tax Collection at Source (TCS).
What should a user do?
Credit card users must maintain proper documentation to substantiate that payments made for foreign tours were done under the Liberalized Remittance Scheme (LRS).
In the event of a tax return audit, users must provide justification for the sources of income used for such foreign tours.
It is important for credit card users to ensure that the information on Tax Collection at Source (TCS) deposited on Form 26AS matches with their credit card statement.
Additionally, users must also keep in mind the 20 percent TCS buffer while using their credit card for foreign tour payments.
