Srinagar, May 20: Come July Ist, 2023, payments made through international debit and credit cards would attract a tax (tax collected at source) of 20%.
Pertinently, as part of an amendment to the Foreign Exchange Management (FEM) Rules, 2023, announced on May 16, the Finance Ministry announced that there will now be a 20 percent TCS (Tax collected at source) levied on payments made through international debit and credit cards. These transactions will come under Liberalised Remittance Scheme (LRS).
This in effect means that all foreign currency payments made using an international credit card, specifically, when that person is abroad, will now come under LRS and thus will be applicable for 20 percent TCS, which was not mentioned in the FEM earlier. The transactions made from July 1, 2023, will be counted under this new scheme.
Originally, the rule was only for transactions made using international debit cards.
The subsequent amendment made
The announcement made by the Finance Ministry last week about the 20% tax on international debit and credit cards has since been amended. In a subsequent announcement, the Finance Ministry tweeted that the said 20% tax would only be applicable on payments exceeding Rs 7 lakh per year – meaning that if your payments made abroad through your Indian international debit cards would exceed Rs 7 lakhs in a year, a 20% tax would be automatically applied.
What would this mean for J&K’s tourism, international travellers, student education and overall economy?
The first impact of this new rule is expected to be on mainly on international travel and tourism, especially group tourism. Expenditure incurred on international education and healthcare remain unaffected and would continue to be governed by the previous laws.
While earlier it was feared that the 20% tax without any slab would severely dent international travel of Indians, the Rs 7 lakh slab announcement has cooled the worries.
Nevertheless, domestic tour and travel agent associations, facilitating international tours, have expressed concern that even this amended tax system would hit outward travels badly.
But, at the same time, there are others who think this measure would promote domestic tourism. Easemytrip said in a media statement that this tax would shift some international travels and tourism to domestic destinations.
As Kashmir’s tourism is significantly picking up, various tourism players believe that while this could encourage more domestic tourism, it would impact some aspects of their business as well.
For instance, more domestic tourism could mean that Kashmir’s share in this new domestic travel trend would go up. Similarly, the greater trickle down effect could mean greater economic prosperity for tourism related sectors and sub sectors in the economy.
When it comes to outward international travel of people from J&K, the impact is likely to be minimal. However, the potential impact on Umrah and Hajj travels is yet to be ascertained.
“Very few people travel for international tourism in Kashmir. So impact on outward travels is expected to be minimal. However, what this tax system would mean for Umrah and Hajj pilgrimage remains to be seen”, a Srinagar-based tour operator told Ziraat Times.
Are there any exceptions for this new tax system?
Yes, there are exceptions. There are certain transactions on which the TCS will not apply. When payments are made to purchase goods and services from India on your card, for example booking an international tour from an Indian website like MakeMyTrip and paying in INR will not be considered a part of LRS. Moreover, transactions made for educational and medical requirements as well as company/business trips will not be a part of the rule change.
Another thing to note is that TCS is refundable and it can be claimed while filing your Income Tax Return (ITR).
As a tourist in a foreign country, you will now have to be conscious when making payments from your credit cards. Keep an eye on your bank statements to know when you cross the INR 7 lakh limit.
