Under the Liberalised Remittance Scheme (LRS), which was recently implemented by the Ministry of Finance, international credit card spending can now take place with an additional charge of 20% called TCS(Tax collected at source). It will also be applicable on foreign currency payments made with international credit cards for goods purchased on foreign e-commerce sites or digital publication subscriptions.
According to the finance ministry, this allows a person to send up to a total of USD 2.50 lakh every year without requiring authorization from the country's central bank to transfer funds.
Impact of TCS
Because of this change, people who use foreign credit cards while traveling outside of India must be aware of the transaction limits listed in Schedule III of the Rules. In the rules, these limits are written down. Because of these restrictions, the total amount of money that can be spent on a specific transaction is fixed at a certain level. So, getting permission first will only be required if specific rules are broken, and some of these limits are pretty high.
Under this rule, a person could make the payment even if they were more than USD 250,000, which is the limit set by LRS. Under Rule 7, the only payments that could be made were those that went toward a foreign trip. That means if a person went on a trip outside of India and used a credit card to pay for things, those costs were added to the person's LRS quota.
Due to this, you hold back some money that you will get as a tax credit or a refund after you file your income tax return.
Collection of TCS
Many experts agree that the authorized dealer, or the bank that gave the credit card, will be responsible for getting this payment. The bank would now charge the person with the credit card an additional 20% to pay the same amount as TCS. The TCS collected would be put in the credit card holder's Permanent Account Number (PAN), which can be used to pay any income tax due for that financial year.
It can be deducted from a taxpayer's annual total income tax obligation. More money will leave the company due to a 20% TCS paid upfront on travel packages. The user must request a refund if they need more taxes to cover the TCS. If you receive a salary, your money will be released once you file your taxes and subtract it from your tax liability. The refund process could take many months and have a significant impact on the user's financial situation.
Requirement of TCS
According to Section 206C of the Income Tax Act of 1961, enterprises that sell alcoholic beverages, liquor, forest products, scrap metal, and other similar items must maintain a TCS. According to this section's sub-section (1G), a TCS payment is required on money sent overseas under the Liberalised Remittance Scheme and on the sale of overseas travel packages.
Reasons for increasing TCS rate
- If the recipient of the TCS payment is a taxpayer, he can utilize the TCS as a tax payment against his regular income and convert it against his advance tax payments, etc., because TCS is not a final tax payment.
- The 20% rate on their expected income is not excessive if the TCS indicates that a person is not a taxpayer, as 20% is the first tax rate bracket under the new system.
- Higher-income taxpayers are more likely to send money out of their own pocket, and those who do so by taking out student loans are eligible for a 0.5% tax break.