According to an announcement released by the Ministry of Finance in India, Indians who use credit cards for making foreign purchases must prepare for additional levies because the Reserve Bank of India’s liberalized remittance system (LRS) has now placed conditioning on transnational payment cards. This means that certain fees or levies will now be applied to credit card transactions made overseas. The announcement also suggests that users of such cards should familiarize themselves.
A credit card is a thin, rectangular piece of plastic or metal that allows you to borrow money from a bank or financial services company to pay for goods and services. You will need to pay back the borrowed money, plus interest, either in full by the billing date or over time.
In addition to the standard credit line, some credit card issuers may also offer a cash line of credit. This allows you to borrow money in the form of cash advances, which can be accessed through bank tellers, ATMs, or credit card convenience checks. Cash advances typically have different terms than regular credit card transactions, such as no grace period and higher interest rates.
The amount of money you can borrow on a credit card is typically based on your credit score. A credit score is a number that lenders use to assess your creditworthiness. The higher your credit score, the more money you will be able to borrow.
Credit cards are a popular form of payment for many people. They offer a number of benefits, such as convenience, rewards, and fraud protection. However, it is important to use credit cards responsibly. If you carry a balance on your credit card, you will be charged interest. Interest rates on credit cards can be high, so it is important to pay your balance in full each month to avoid paying interest charges.
Here are some tips for using credit cards responsibly:
- Only charge what you can afford to pay in full each month.
- Pay your bill on time.
- Keep your credit utilization low. Credit utilization is the percentage of your available credit that you are using. A low credit utilization will help improve your credit score.
- Be aware of the fees associated with your credit card. Some credit cards charge annual fees, late payment fees, and foreign transaction fees.
If you use credit cards responsibly, they can be a valuable tool for building your credit history and improving your financial well-being.
As of now, the Indian government has granted permission to impose a 20 percent Tax Collection at Source (TCS) on all transactions made with credit cards outside of India. It is important to note that this limit was previously restricted to debit cards, currency cards, and bank transfers under Liberalized Remittance Scheme (LRS). This move is a significant development as it broadens the scope of TCS and strengthens the government’s revenue collection mechanism for such transactions.
As per an announcement made by the government in consultation with the Reserve Bank of India (RBI), it has come to light that Rule 7 of the Foreign Exchange Management (Current Account Transaction) Rules, 2000 has been floated.
This lays down provisions pertaining to the use of credit cards outside India or for transnational transactions under the Liberalized Remittance Scheme (LRS). Consequently, a Tax Collected at Source (TCS) of 5 percent will now be levied, effective immediately and up until July 1st. Beginning July 1st, the TCS on foreign credit transactions will be raised to 20 percent.
HOW IT WORKS
Let’s use an illustration to help you comprehend it. Let’s say” A” takes a trip to the Bahamas and uses his Indian credit card to make 200,000 INR in purchases there. Now, on behalf of X, the credit card establishment will produce a bill of INR 240,000 and pay INR 40,000(20 percent of the entire quantum spent) to TCS. Eventually, when A submits his income duty return, he may claim the TCS valued at 40,000 rupees.
Experts predict that the newly introduced law may result in increased costs for Indian travelers who plan on visiting foreign countries. Therefore, Indian tourists must account for these additional expenses when calculating the total cost of their trips abroad. Rikant Pittie, who is the owner of EaseMyTrip, recommends that Indian consumers factor in these extra costs.
Even though the new regulations regarding credit cards are expected to discourage duty infidelity and promote conformity, the decision is facing criticism from various online platforms. Despite this criticism, passengers seeking a TCS refund when completing their periodic duty return would not be affected by the change, and the total effect on trip charges will remain the same.
The finance minister of India, Nirmala Sitharaman, received a Twitter mention from Ajay Rotti, who expressed his opinion that the proposed 20 percent TCS (Tax Collected at Source) was “a little high”. Mr. Rotti further stated that despite the points he had presented earlier, he still believed that the tax rate was too high. He emphasized that this clause needs to be modified, as foreign expenditures cannot be ignored. It is crucial to provide a proper balance between tax revenue and foreign investments in the country. Rotti’s tweet highlights the need for a more just and equitable taxation system that can promote economic growth.