NEW DELHI, June 20 (PTI): The tax department is considering a proposal under which credit card holders will have to file a declaration with the issuer entity within a stipulated time, specifying the nature of expenses incurred in foreign currency for the purpose of TCS levy, sources said.
The I-T department is in talks with the RBI and other stakeholders to firm up a mechanism for distinguishing whether the expense is towards medical/education which attract a 5 per cent TCS or for other purposes on which a 20 per cent Tax Collection at Source (TCS) would be levied, they added.
According to sources, discussions are veering around giving additional time to taxpayers for filing declaration to the credit card issuer bank specifying the nature of expenditure from July 1– the date from which the new TCS proposal will come into force.
The tax department will issue a detailed FAQ on modalities for levy of TCS at the specified rate.
Beginning next month, overseas expenses on credit cards exceeding Rs 7 lakh will be subject to a 20 per cent TCS. However, if such expenses is incurred for medical or educational purpose, the TCS would be levied at 5 per cent. For those availing loans for overseas education, a lower TCS rate of 0.5 pr cent would be levied above the Rs 7-lakh threshold.
The Union Budget 2023-24 had hiked TCS rates to 20 per cent, from 5 per cent currently, on overseas tour packages and funds remitted under LRS (other than for education and medical purposes). The new tax rates will come into effect from July 1, 2023.
In May, the government brought changes to the FEMA Current Account Transaction Rules and included overseas credit card expenses in the ambit of LRS (Liberalised Remittance Scheme), under which a resident can remit money abroad up to a maximum of USD 2.50 lakh per annum. Beyond the threshold, RBI approval would be required.
The changes in FEMA rules effectively brought credit card spends under the ambit of TCS.
Following concerns raised by public, the finance ministry on May 19 issued a clarification that any payments by an individual using their international debit or credit cards up to Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS. Detailed clarity on the issue is still awaited.