Credit card payments on foreign travels likely to come under tax net

The finance ministry has asked the Reserve Bank of India (RBI) to look into the aspect of bringing credit card payments done during foreign tours under the central bank’s liberalised remittance scheme (LRS) so that such expenses do not escape the tax collection at source (TCS).

Moving the Finance Bill in the Lok Sabha on Friday, Finance Minister Nirmala Sitharaman said: “It has been represented that payments for foreign tours through a credit card are not being captured under the LRS and such payments escape TCS. The RBI is being requested to look into this with a view to bring credit card payments for foreign tours within the ambit of LRS and TCS thereon.

“The move will benefit the Indian online travel agencies and discourage bookings of foreign tour packages by Indians from foreign vendors by paying it through credit card. This will help better the tax collection and also give a boost to Indian online travel agencies (OTA) offering foreign tour packages in India,” said Rikant Pittie, co-founder of EaseMyTrip.

According to the LRS, which was introduced in 2004, all resident individuals, including minors, are allowed to freely remit up to $250,000 per financial year. This is for any permissible current or capital account transaction or a combination of both. Initially, the scheme was introduced with a limit of $25,000, and was increased later.

In the Union Budget 2023-24, the government raised the TCS rate for foreign remittances under the LRS from 5 per cent to 20 per cent. This will apply to overseas tour packages and other remittances except for education and medical purposes.

TCS is essentially an income tax, collected by the seller of specified goods, from the buyer. TCS is a concept where a person selling specific items is liable to collect tax from a buyer at a prescribed rate and deposit the same with the government.

The TCS on remittances made under the LRS was launched in 2020 in order to keep track of remittances and correlate the same with income tax returns of people deploying funds through this route. Different TCS rates are applicable based on the nature of transactions.