India puts on hold taxing international credit card spends, foreign remittances at 20%
India has announced it will put on hold its decision to tax international credit card spending at 20 per cent from July 1.
It means spending on hotel rooms, entertainment, purchase of consumer goods and other items by Indian tourists in their favourite overseas destinations like Dubai and Abu Dhabi will remain steady for the rest of this year.
This follows the Indian Finance Ministry’s decision to postpone the introduction of a 20 per cent tax on annual overseas spending by Indians.
India tax update
The tax was to have been collected from July 1, which is the peak of India’s outbound tourism season.
The move had been labelled as “tax terrorism” by critics and invited widespread opposition, including from some big names who are supporters of the ruling party at the centre.
A Finance Ministry spokesperson said: “Numerous suggestions were received from banks, the travel industry and the public about the new tax, which have been carefully considered.
“It has been decided to give more time for the implementation of the revised tax collection at source (TCS).”
The new tax would have also covered the sale of overseas tour packages. A large number of Indians visit popular tourist destinations like the UAE by purchasing package tours.
These tours would have become 20 per cent costlier from next week if the new tax had not been deferred.
“Transactions by Indians through international credit cards while being overseas would not be counted as part of a Liberalised Remittance Scheme (LRS) and hence would not be subject to TCS,” the Ministry said yesterday.
The government also extended the timeline to levy 20 per cent TCS on foreign remittances by residents to October 1 this year from the originally announced date of July 1, the federal ministry of finance said in a statement issued on Wednesday late evening.
The postponement has come amid banks raising concerns about the unpreparedness of their reporting systems to roll out the differential TCS levy for various categories such as medical, education, overseas tour packages among others.
Foreign remittances for education and medical purposes were exempted from the 20 per cent TCS, while overseas remittances up to IR700,000 ($8,530) in a year were continued to be charged at 5fivepercent as per the proposal announced in this year’s Budget.
?? Important changes w.r.t. Liberalised Remittance Scheme #LRS and Tax Collected at Source #TCS— Ministry of Finance (@FinMinIndia) June 28, 2023
?? No change in rate of #TCS for all purposes under #LRS and for overseas travel tour packages, regardless of mode of payment, for amounts up to ?7 lakh per individual per annum
The finance ministry said the decision on deferment has been taken after “discussions with various stakeholders, and taking into account comments and suggestions received” and to give adequate time to banks and card networks to put in place requisite IT-based solutions.
The threshold of IR700,000 per financial year per individual will be there for TCS on “all categories of LRS payments, through all modes of payment, regardless of the purpose”, the ministry said.
Remittances for the education of Indian children in campuses such as in the UAE will not attract any tax if they are below 700,000 Indian rupees ($ 8,500). Above that limit, TCS of 0.5 percent is already levied.
Remittances abroad for medical treatment and tour packages above the limit of 700,000 Indian rupees are already subject to TCS at five percent. India media today commented that the proposed increase in TCS “for all practical purposes, is now in cold storage.”
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