Tax collected at source on overseas credit cards implementation expected in FY24, says finance ministry official

The Centre is considering putting in place a mechanism pertaining to tax collected on overseas credit cards by mid-2024, said a finance ministry official.

"We have given a few months to the banks and merchant operators in order to analyse and put a system in place," the official added on the condition of anonymity. 

The Department of Economic Affairs (DEA) has been discussing the matter with the Reserve Bank of India (RBI) and the Indian Banks Association (IBA) to come up with a mechanism that needs to be developed in order to include credit cards on international spends under the Liberalised Remittance Scheme (LRS).

"It is going to be difficult to have software that determines how banks or merchant operators will assess the nature of the transaction. So, banks are being given this time to analyse and come up with a mechanism, if possible. We cannot have credit cards out of the system," added a source.

The Centre also plans to form a sub-committee with the tax policy and legislation unit (TPL) of the revenue department in order to lead coordination with other stakeholders on this issue.

Earlier, on June 28, the Finance Ministry announced that some financial institutions had requested additional time to modify their existing IT systems to address issues arising from the implementation of tax collected at source (TCS) on credit card transactions.

In response to these requests and to allow banks and card networks to develop the necessary IT-based solutions, the government decided to postpone the implementation of the May 16 e-gazette notification. Consequently, transactions made through international credit cards while overseas would not be considered part of the LRS and, therefore, would not be subject to TCS during this period.