DelhiDesk The Indian government has increased the tax on foreign spending to 20% from 5%, which will apply to all credit card spending, including forex and debit cards, from 1 July. The tax collected at source (TCS) will be deducted by the card provider and can be adjusted against any advance tax due. However, if no tax is due, a refund can be claimed at the end of the year. The TCS will apply to all foreign spending, regardless of the amount, and the credit card exception has been removed. However, there may be practical difficulties in distinguishing between business and personal expenses made using a corporate credit card. Remittances for education and medical treatment will attract a lower TCS rate of 5%.
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👉 The government has brought credit cards under the Liberalized Remittance Scheme (LRS) from 1 July.
👉 Even a dollar of foreign spending will attract a 20% tax — a departure from the current 5% tax on spending of over 7 lakh (credit cards excluded).
👉 Tax Collected at Source or TCS is similar to tax deducted at source in the sense that it is a tax deduction by a third party on your behalf.
👉 It was introduced in Budget 2020 on payments under the LRS — ie investments in foreign countries.
👉 The TCS will reflect in Form 26 AS every quarter when the bank files the TCS returns.
👉 Remittances for education (and medical treatment) will attract a lower TCS of 5% (for education loans it is 0.5%).
👉 There are doubts about expenses such as maintenance of the student (day-to-day expenses), transport and off-campus accommodation.
👉 However, the finance ministry clarified that such incidental expenses will also attract the lower TCS rate of 5%.
👉 Spending on a corporate credit card for business purposes is technically spending on the ‘current account’ and should not fall under LRS.
👉 Practical difficulties may arise in distinguishing business expenses from personal expenses made by an employee using a corporate credit card.
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