20% TCS On International Credit Card Spends: Banks Watch For Impact On High-Value Customers

Banks will wait for clear guidelines from the RBI before acting on international credit card transactions.

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India's banking system is waiting for more clarity before it takes any action on international credit card spends, according to three bankers in the know.

Nearly every credit card transaction made towards a merchant abroad, with the exception of health and education, will attract the higher 20% tax collected at source, the first of the three bankers said. All three spoke on the condition of anonymity.

This may directly impact high-value customers who actively use their credit cards when travelling abroad for business or leisure.

The government withdrew rule 7 exemptions for international credit cards, which allowed these transactions to continue outside the liberalised remittance scheme, according to a gazette notification issued on Tuesday by the Ministry of Finance. Under the scheme, resident Indians are allowed to spend up to $250,000 in foreign currency each financial year without explicit permission from the RBI.

Finance Minister Nirmala Sitharaman on Feb 1. had proposed raising the tax collected at source for international remittances to 20% from the current 5%.

The new norms will be a "compliance headache" for lenders, another private banker said. Banks will be required to spend further resources on closely tracking international card transactions starting July 1, while also tracking the tax collected at source and any refunds borne out of these.

The third banker quoted above said lenders will await clear guidelines from the Reserve Bank of India before they take any further action.

Rama Mohan Rao Amara, managing director and chief executive officer at SBI Cards & Payments Services, said on Thursday, "Internal teams are looking at the fine print and assessing. Will do whatever is necessary to comply."

According to Aseem Chawla, founder, ASC Legal Solicitors & Advocates, the new norms could be seen as a harmonisation of rules for credit card transactions. These norms already apply to debit cards and forex cards.

Still, they could prove to be a logistical challenge, Chawla said. For large, unreported transactions, this change will allow authorities to "catch the tail and get the fish out of it".

Sudhir Nayak, partner at Dhruva Advisors, too, sees lots of challenges from the banking perspective. "Monitoring this could be very difficult," he said. "Feel the objective is to track and assess the income proportional to spending. They want to deter people from spending money today."