Banks expect the RBI will come out with guidelines on recovering tax on cardholders on cross-border payments. FM Nirmala Sitharaman, while moving the finance bill for passage in May, said the RBI has been asked to look into ways to bring credit card payments on foreign tours under the LRS.
On Tuesday, the government issued a notification striking down rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000. Section 7 pertained to specific transactions exempted from regulations if made using credit cards.
The Union Budget 2023-24 hiked TCS rates to 20%, from 5% currently, on overseas tour packages and funds remitted under LRS (other than for education and medical purposes). The new tax rates will come into effect from July 1, 2023.
The government had defended the move, stating that the transactions on which TCS was imposed were made out of taxable income and the remitter would in any case be paying tax on the income. However, accountants say that there would be retired people who make remittances out of their savings who are not liable to pay tax and would have to claim a refund.
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