Explained: Why Credit Card Spends Overseas Won't Be Taxed At Source

The finance ministry issued a clarification on the matter through a series of tweets. (Representational)

While credit card spends overseas will not attract tax collected at source now as such transactions have been kept outside the liberalised remittance scheme, any international transaction conducted from India will attract the levy.

Users or consumers purchasing foreign goods and services through an international merchant will need to pay 5% upfront.

The government's announcement in the Budget this year to bring all international credit card transactions under the ambit of the liberalised remittance scheme - which would have entailed a higher tax collected at source (TCS) rate of 20 per cent for transactions over Rs 7 lakh in a year - had attracted criticism.

The finance ministry announced yesterday that the implementation of a higher TCS of 20 per cent on expenditures made under LRS and overseas tour packages has been deferred till September 30. The new rates will come into effect from October 1.

It also issued a clarification on the matter through a series of tweets. A release said, "In response to the comments and suggestions, it has been decided to make suitable changes. Firstly, it has been decided that there will be no change in the rate of TCS for all purposes under LRS and for overseas travel tour packages, regardless of mode of payment, for amounts up to Rs 7 lakh per individual per annum."

"It has also been decided to give more time for the implementation of the revised TCS rates and for inclusion of credit card payments in LRS," it added.

As per the latest notification, from October 1, the tax collected at source will be raised to 20% for spends above Rs 7 lakh per person. The higher tax rate will be applicable on international tour packages and spends through transaction modes other than credit cards.

Experts believe that a clear message on keeping credit cards out of the ambit of the liberalised remittance scheme is a big boost and will assure the public, bankers as well as the tourism industry that their suggestions are being heard and implemented.