Tax waived on annual forex spends up to ₹7 lakh: FinMin

Source: The post is based on the article “Tax waived on annual forex spends up to ₹7 lakh: FinMin” published in The Hindu on 20th May 2023

What is the News?

The Finance Ministry has clarified that payments using international debit or credit cards up to Rs 7 lakh per financial year will be excluded from the Liberalised Remittance Scheme (LRS) limits and, therefore this will not attract any Tax Collected at Source(TCS).

What is the issue?

Recently, the Government amended rules under the Foreign Exchange Management Act, bringing in international credit card spending outside India under the Liberalised Remittance Scheme (LRS).

As a consequence, the spending by international credit cards will attract a higher rate of TCS at 20 per cent effective July 1,2023.

At present, a TCS levy of 5% will come into effect on such transactions till July 1 (except for medical and education-linked sectors), which would then increase to 20 per cent after July 1.

Prior to this, the usage of an international credit card to make payments towards meeting expenses abroad was not covered under the LRS.

This move has raised concerns about the applicability of TCS to small transactions under the Liberalised Remittance Scheme(LRS).

What has the government done to address concerns?

The government has clarified that payments using international debit or credit cards up to Rs 7 lakh per financial year will be excluded from the Liberalised Remittance Scheme (LRS) limits and, therefore this will not attract any Tax Collected at Source(TCS).

Moreover, existing beneficial TCS treatment for education and health will also continue.