If you plan on jet-setting from India for an international holiday anytime after October 1st, 2023 be prepared to conjure a little extra budget. That's right! The Indian government may be levying 20% Tax Collected at Source (TCS) on every transactions you make internationally.

A Series of Announcements with Regards to 20% TCS

1. Announcement in February 2023

In February 2023, during the Union Budget, Finance Minister Nirmala Sitharaman announced that the Tax Collected at Source (TCS) will now be 20% (from the earlier 5%) on foreign remittances. This meant that sending money abroad or making investments or purchases using debit cards, forex cards, bank transfers, or the stock exchange would become 20% more expensive. 

2. Revised Notification Dated 19 May 2023

• On 16 May, the Finance Ministry issued a notification expanding the scope of the new regulations stating that credit card transactions were now included in the changes, which were previously exempt from the 20% TCS tax liability. 
• Starting July 1, 2023 all international payments or transactions made using credit, debit, or forex cards, as well as bank transfers, will incur an additional 20% charge in the form of (TCS) tax.

But soon after, a new notification was announced on 28 June 2023.

3. New Announcement on 28 June 2023

• The originally scheduled implementation date of July 1, 2023 for the proposed increase in TCS rates has been rescheduled to October 1, 2023.
• Along with this, the existing status quo on credit cards will be maintained and the transactions made through International Credit Cards while abroad would not be considered under LRS and would therefore not be subjected to TCS.
• It mentioned that the implementation has been postponed to allow Banks and Card networks sufficient time to establish the necessary IT-based solutions.

Only time will tell when credit card/debit card transactions will come under the LRS scope and attract a high TCS.

What Does This Mean For You?

For tourists planning on international travel, not just tour packages but also international spends will attract a higher TCS rate of 20% if the total spend is above ₹7 lakh. However, if the spends are under ₹7 lakh, the older 5% rate will continue as TCS. This will applicable on spends via debit cards, cash, forex cards, wire transfers, etc.

You Can Claim the 20% TCS Back 

Yes, the 20% TCS incurred (on foreign remittances or other LRS-led expenses) can be claimed back when you file your Income Tax Return if you have paid more TCS than your actual tax liability. To claim the TCS refund, complete the ITR form's relevant sections and provide supporting documentation. Consulting a tax professional or a qualified chartered accountant is advisable if you doubt claiming a TCS refund in your ITR.

While some argue that the 20% TCS is not an extra cost since you can eventually retrieve it, for some, the 20% charge may mean incurring a more significant upfront, blocking cash flow for immediate use. 

Save With Fi

• A 20% additional TCS (Tax Collected at Source) on your planned travel budget can significantly impact your finances.
• As the saying goes, it's not just about earning money but also about saving wherever possible.
• That's why saving on your international expenses becomes crucial. By using a Fi-Federal Debit Card, you enjoy zero forex charges and enjoy a hassle-free spending experience during your international trip.

Frequently Asked Questions

1. What is TCS tax?

Tax Collection at Source (TCS) is an additional amount collected as tax by a seller of specified goods from the buyer at the time of sale over and above the sale amount and is remitted to the government account. 

2. Is TCS refundable? 

Form 26AS displays TCS as a tax credit that can be utilized to offset the tax liability while filing an Income Tax Return (ITR). Additionally, TCS can also be adjusted against advance taxes at the time of filing. In cases where the TCS amount cannot be offset against the taxes payable or any other form, it will be eligible for a refund following the completion of the ITR filing (specifically, ITR-07).

3. How can you avoid the 20% TCS?

The only way to avoid these charges is if you have a bank account, credit card, or debit card issued in a foreign country. Alternatively, if you have friends or relatives who can make payments using their foreign accounts on your behalf, you can also bypass the charges. Alternatively, you can get a Fi-Federal co-branded Debit Card which will incur zero forex charges on your international holiday spends. 

4. Will I be charged 20% TCS if I spend abroad with my Indian credit card?

As per a revised notification issued by the government, as of now, you will not be charged a 20% TCS when you swipe your indian credit card abroad.