Pre-paid forex cards will come under the liberalised remittance scheme (LRS) and will attract 20 per cent TCS (tax collected at source) beyond Rs 7 lakh from October 1. International credit cards used abroad will not come within the ambit of LRS; no TCS will apply to its use.

However, if an international credit card is used within India, TCS will apply.

A forex card is an electronic version of cash. It is pre-loaded with one or multiple foreign currencies that can be swiped to make all types of payments. The card can be used at an ATM in foreign countries to withdraw cash.

Finance ministry officials said the exemption to international credit cards used abroad has been given to give adequate time to banks and card networks to put in place requisite IT-based solutions.

This is a clear indication the exemption to credit cards is not perpetual.

The official said: “If a person is overseas and spends through the credit card, it would not count under LRS and therefore would not attract TCS. However, if a person uses a credit card while in India for permissible overseas transactions, it would count under LRS and attract TCS if it exceeds Rs 7 lakh in a year.”

The finance ministry on Wednesday deferred by three months the implementation of a higher TCS rate of 20 per cent on expenditures made under LRS and overseas tour packages till September 30. The new rates will come into effect from October 1.

Shruti K.P, partner, IndusLaw, said: “The government should reconsider the proposed rate hike of 20 per cent. It puts unnecessary cash flow pressures on taxpayers, while not serving any additional purpose to the government, as far as garnering tax revenues is concerned since ultimately the TCS is available as credit to the taxpayer.”