Experts cry foul over tax on foreign spending via credit card

While some explained how unnecessary the move is, others simply disregarded the decision saying, “20% TCS on LRS. Why?”, “ludicrous policy” and more.

Social media, especially Twitter, saw a major outrage by financial experts, analysts and others after the government recently notified that spending in foreign exchange through international credit cards will be covered under the Reserve Bank of India’s liberalised remittance scheme (LRS). Spending on international credit cards will attract a higher rate of Tax Collected at Source (TCS) at 20 per cent effective July 1, 2023

While some explained how unnecessary the move is, others simply disregarded the decision saying, “20% TCS on LRS. Why?”, “ludicrous policy” and more. Some investors, analysts even called out the government’s move as a run-up to 2024 Lok Sabha elections.

The Ministry of Finance on May 16 notified the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023, to include international credit card payments in the LRS. Any remittance beyond $2.5 lakh or its equivalent in foreign currency would require approval from the RBI.

ALSO READ: How will tax on foreign tour spends on credit cards affect your holiday. The complete guide

The government decision has drawn a lot of flak from several experts, others from various walks of life.

Elaborating on the several impacts of the change in taxation on foreign spend, Sandeep Pravin Parekh, Managing Partner, Finsec Law Advisors, said, “Tax deduction for foreign expenses is wrong and the justifications are even more wrong.”

In a longish post, Parekh tweeted, “This will not prevent money laundering, it will CAUSE money laundering. Who wants to pay 125$ for a 100$ product.”

Author and chartered accountant Anupam Gupta, explaining the recent examples of daft changes in taxation by the Centre, said, “20% TCS on LRS. Why?… A few maybe abuse the system. And now? Everyone has to pay for those abusers. That too 20%? Seriously?” among other things.

Rajeev Mantri, Managing Director at Navam Capital, echoed the same thoughts as he tweeted that the government’s move is a “terrible policy, period,” adding that “There is no justification for this ludicrous policy, it does far more damage than whatever it accomplishes.”

“20% TCS on credit card use outside India. The biggest risk to India story is Finance think tank. Keep changing taxes and increase the burden on the same 4-5 cr people who pay tax -through STT, capital gain, dividend, TCS, angel tax, fringe benefit tax etc. Speed breaker mindset- instead of catching d erring people, make everyone suffer,” said Gurmeet Chadha, CIO & Managing Partner, Complete Circle Wealth.

Ajay Rotti, Founder and CEO of Tax Compaas noted, “Dear @nsitharaman- TCS on international use of credit cards is not something you should go ahead with. It impacts a lot of business travelers, who spend on behalf of the company. It serves no purpose with TCS on the employees name and it can’t be on company name!”

Moreover, many users highlighted how the 20 per cent TCS on credit card usage in foreign countries will hamper “ease of doing business”.

“So 20% TCS on foreign spending through credit cards and we want the ‘₹’ to replace the ‘$’- Kya baat hai,” said Basant Maheshwari, Investor and Portfolio Management Services, Smallcase.

Former BharatPe co-founder and entrepreneur Ashneer Grover stated that Tax Collected at Source (TCS) rules will never be applicable to political donations and added that political donations in India enjoyed income tax exemptions.

The Union Budget 2023-24 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).

Facing backlash, the Ministry of Finance issued Frequently Asked Questions regarding 20 percent TCS. It stated that the payment of TCS is not a final tax. If the TCS payee is a taxpayer, he can claim credit for the TCS as his tax payment against regular income and adjust it against the advance tax etc., payments accordingly.