Anticipated Tax Relief: Government Set to Exempt Overseas Card Spending from TCS Up to ₹7 Lakh
In a significant move, the government is poised to announce a potential exemption from tax collected at source (TCS) on overseas credit and debit card spending, with an individual limit of up to ₹7 lakh per financial year. A senior official revealed that this announcement is expected to be part of the interim budget, and an amendment to the Income-Tax Act will be presented in the Finance Bill next year to formalize this exemption.
The proposed TCS exemption is specifically targeted at transactions falling under the Liberalised Remittance Scheme (LRS). Currently, any payments made by an individual using their international debit or credit cards up to ₹7 lakh are not covered by the Income Tax Act and need legislative action. The forthcoming amendment in the Finance Bill is anticipated to address this gap and provide clarity on the tax treatment of such transactions.
Earlier this year, the government brought credit cards within the ambit of LRS, subjecting them to a 20% TCS on overseas spending. However, in response to widespread criticism, the finance ministry decided to exclude international spending of up to ₹7 lakh from the 20% TCS, ensuring relief for individual taxpayers.
“To avoid any procedural ambiguity, it has been decided that any payments by an individual using their international debit or credit cards up to ₹7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS. Existing beneficial TCS treatment for education and health payments will also continue,” stated the finance ministry in a May 19 announcement.
The exemption is expected to be a key highlight of the upcoming vote on account, considering that no other major tax-related announcements are anticipated due to the interim nature of the budget. A vote on account allows the government to fund its expenses for a short period, bridging the gap until a full budget is passed.
The government had earlier proposed an increase in TCS for overseas packages to 20% from 5% in the Union Budget 2023. This move, initially slated to be effective from July 1, faced implementation delays and eventually took effect from October 1. Notably, credit cards were initially excluded from LRS, but a notification from the Ministry of Finance in 2023 aligned them with debit cards for LRS purposes.
In March 2023, Finance Minister Nirmala Sitharaman highlighted the need to bring credit card payments for foreign tours under the purview of the LRS, addressing the evasion of TCS on such payments. As the government seeks to formalize the exemption and provide relief to individual taxpayers, the interim budget is expected to bring clarity to this significant aspect of overseas spending.