Taxpayers and overseas travellers are in a flap over the finance ministry notification imposing a 20 per cent TCS on credit card spending abroad.

The central government on Tuesday (May 16, 2023) notified the amended rules under the Foreign Exchange Management Act (Fema), which has brought credit card spending outside India under LRS. The amended rule would be applicable from July 1, 2023.

Amidst criticism, the ministry on Thursday clarified that international credit card spends by employees on business trips abroad will be exempted from the annual limit of $250,000 under the liberalised remittance scheme (LRS) of the Reserve Bank of India, if such expenses are borne by their employers.

The proposal formed part of the budget. The tax rate has been raised from 5 per cent to 20 per cent for all payments under LRS without any minimum threshold.

This is likely to have a big impact on numerous online payments made by individuals since any payment via a credit card to foreign vendors (such as for hotel and airline bookings, gaming, subscription to software/magazines/memberships etc) will be subjected to 20 per cent TCS irrespective of the amount paid.

In every such case, individuals will need to claim a credit for such TCS in their tax returns resulting in increased administrative compliance and cash flow issues.

Twitter is awash with comments slamming the Centre’s move.

“Thanks for the Info Sys,” Ramesh Srivats tweeted apparently meant for Sitharaman. “This Mphasis on constantly finding new ways to tax is a big burden on Wi Professionals.”

“Foreign travel pe 20 per cent TCS; foreign credit card spend pe 20 per cent TCS and LRS limit me lana bahut hi interesting rule hai. Haan political donations pe kabhi TCS nahi lagne wali hai! Wahan aapko ulta income tax mein rebate milegi,” tweeted Asneer Grover, founder of Bharat Pe.

Suggestions were floating around on how to beat the tax.

“Simple workaround is to travel with cash and/or travellers cheques,” tweeted Arnab Bakshi with moniker Lost.