TCS on International Purchases: Cracking the Tax Code!


Unlock the tax mystery surrounding TCS. Does it have the capability to make or break your vacation abroad?

Are you planning to go on a vacation abroad? If yes, you need to know about the new Tax Collection at Source (TCS) rules because they will significantly impact everything you purchase abroad. 

So, to give you a gist, the government has decided to impose a 20% TCS on international credit card purchases made abroad. This unexpected tax policy has captured the attention of individuals and businesses alike, sparking confusion and frustration. 

Today, let’s break it down and explore what TCS is and why it is being levied on your overseas credit card adventures. 

What’s Happening?

The Central Government has recently amended the Foreign Exchange Management Act (FEMA) rules. As part of these changes, credit card transactions made abroad have been brought under the Liberalized Remittance Scheme (LRS) purview. 

Starting from 1st July 2023, a 20% Tax Collection at Source (TCS) will apply to these transactions, excluding education and medical expenses. However, it’s important to note that the Finance Ministry has provided a clarification to ease concerns. They stated that personal payments made abroad using international debit and credit cards, up to Rs 7 lakh in a year, will not be subjected to the TCS. 

What is TCS in the First Place?

Imagine you are buying something from a store. Along with the price, you also pay a tax component. That tax you pay the seller is called TCS, which stands for Tax Collection at Source. It’s a way to ensure that taxes are paid directly at the time of the transaction. The responsibility to collect TCS lies with the seller, who then submits it to the government.

Let’s break it down with an example. If you happen to spend up to Rs 7 lakh abroad within a year and make purchases or expenses using your credit card, guess what? The credit card company will charge you a 20% tax on those transactions and pass it on to the government. It’s their way of ensuring taxes are paid on your international spending.

Now, Where is the Confusion?

Following the hike in TCS rates, various calculations started circulating to determine the impact on individuals. For instance, if someone spends Rs 5 lakh on foreign travel, it was suggested that they would have to pay Rs 1 lakh as TCS, resulting in a total expenditure of Rs 6 lakh. However, the Ministry of Finance stepped in to provide clarification. The ministry emphasised that the exemption for education and medical expenses would still be applicable, and spending up to Rs 7 lakh in a year, would not be subjected to the TCS. 

Demand From Tour Operators

Apart from international card payments, booking a foreign tour package will also attract a 20% TCS, which was 5% starting from 1st July 2023. Hence, domestic tour operators and travel platforms have expressed concerns and called for removing the proposed 20% TCS.

According to Economic Times, Rajiv Mehra, the President of the Indian Association of Tour Operators, has criticised the requirement for domestic tour operators to offer foreign tour packages at a 20% TCS rate. He argues that many travel agents are still grappling with the repercussions of the COVID-19 pandemic, and imposing such a high tax would further strain their recovery efforts. Mehra suggests that the TCS exemption of Rs 7 lakh should also be extended to domestic tour operators, providing them with some relief and enabling a smoother revival for the industry.

That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!

*The article is for information only. This is not investment advice.


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