New Delhi: In response to a severe backlash against its new policies on foreign transactions, the Finance Ministry Friday clarified that any debit or credit card transactions of up to Rs 7 lakh made by individuals while abroad would be exempt from the 20 per cent tax collected at source (TCS).
Finance Minister Nirmala Sitharaman had in Budget 2023 announced that the rate of TCS on non-educational and non-medical transactions made abroad would be hiked to 20 per cent from 1 July onwards. The previous rate was 5 per cent.
Now, only transactions above Rs 7 lakh will attract TCS.
A TCS is not exactly a tax as it can be adjusted against the final tax to be paid at the end of the financial year. That is, it will either be refunded or reduced from the amount of tax that has to be paid at the time of filing returns. The purpose of a TCS is to track transactions.
The Ministry of Finance Tuesday also issued a notification bringing international credit card transactions within the ambit of the TCS. Credit card transactions were previously exempt.
Tuesday’s notification gave rise to intense criticism online from all quarters, including businessmen, prominent journalists, and Opposition leaders. The criticism was of a varied nature, including how the 20 per cent rate was unnecessary when even a 0.1 per cent rate would help the government track transactions.
The high compliance burden this would entail was another major concern.
“Concerns have been raised about the applicability of Tax Collection at Source (TCS) to small transactions under the Liberalised Remittance Scheme (LRS) from July 1, 2023,” the government said in a release Friday.
“To avoid any procedural ambiguity, it has been decided that any payments by an individual using their international Debit or Credit cards up to Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS,” it added.
The government also said that the existing beneficial TCS treatment for education and health payments — where they attract a much lower rate of TCS — will also continue.
“The necessary changes to the Rules (Foreign Exchange Management (Current Account Transactions Rules), 2000) will be issued separately,” the government said.
(Edited by Zinnia Ray Chaudhuri)
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