Credit card holders will have to file a declaration

New Delhi: 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 Tax Collection at Source (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 or education which attract a 5 per cent TCS or for other purposes on which a 20 per cent TCS would be levied. 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 are incurred for medical or educational purposethe TCS would be levied at 5 per cent. For those availing loans for overseas education, a lower TCS rate of 0.5 per 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 Liberalised Remittance Scheme (LRS) other than for education and medical purposes. The new tax rates will come into effect from July 1, 2023.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.

In May, the government brought changes to the Foreign Exchange Management Act (FEMA) Current Account Transaction Rules and included overseas credit card expenses in the ambit of LRS under which a resident can remit money abroad up to a maximum of $2.50 lakh per annum. Beyond the threshold, RBI approval would be required. The changes in FEMA rules effectively brought credit card spend 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.