Paying with your credit card on your foreign vacay could tax you, literally! Read to understand how rules will change starting 1 July 2023.
2/ Under new rules, credit card spends will now come under the Liberalised Remittance scheme or LRS. It is now similar to sending money overseas.
3/ Any foreign remittance will be taxed at 20%. Credit card spends abroad will also be taxed similarly. This tax is collected at source (TCS).
4/ This credit card spend will also count to your LRS limit. Under Indian laws, you can only remit or send US$ 250,000 per head in a year.
5/ Booking an overseas trip with an international agent? That will come under LRS too, and will be taxed at 20%.
6/ Note that this will not apply when you pay for foreign goods/services from India, like an OTT subscription. #TaxUpdates
7/ The change was first proposed in the Union Budget 2023-24.
8/ How will this work? The operational guidelines will be issued at a later stage. #Travel
9/ Can you get a refund on TCS? Yes, since TCS is collected by sellers from buyers and deposited with the government. You can claim refunds when filing returns, but this could result in locked funds until the tax department initiates refunds. #Taxation
10/ Why the change? So the government can track high-value overseas transactions. Also, because there is a surge in overseas travel spending.
11/ Indians spent a whopping US$12.51 billion on overseas travel between April-February of fiscal 2022-23. That is a 104% increase over the previous year, though the base was low due to the pandemic.
12/ #Update: Credit card spends abroad upto Rs 7 lakh per financial year will not be taxed. It will be excluded from LRS limit. FinMin clarifies on LRS.
13/ Keep this in mind when planning your next vacation and stay tuned for more updates on the evolving financial landscape! #FinancialUpdates