Taxman trying to untangle TCS on overseas credit card usage

After much criticism, tax authorities are now assessing how they could reduce the compliance burden associated with the 20 per cent tax collected at source imposed on the use of credit cards for overseas transactions.

A Finance Ministry source said that the knotty issue is the difficulty in identifying the nature of the transaction and distinguishing it for tax treatment purposes.

"In case of identification of the nature of the transaction, we need inputs from banks, and payment gateways which is a complicated process. However, we are also checking if we could solve the problem and derive a method without the identification," said an official.

Speaking at an industry event earlier, Raman Chopra, joint secretary of the Department of Revenue, said several discussions between top Finance Ministry officials on the issue.
 
The government had earlier brought overseas credit card spending under the Liberalised Remittance Scheme (LRS). This means that any spending using credit cards overseas would attract a 20 percent tax from July 1.
 
The government has raised the TCS rate on foreign remittances under the LRS from 5 per cent to 20 per cent, effective July 1, 2023. In the month of May 2023, they made an exception to the TCS legislation where small payments made on international debit or credit cards, up to Rs 7 lakh in a financial year, will be excluded from the 20 per cent tax collected at source.

Finance Ministry officials are also in touch with the Reserve Bank of India and banks on this subject.

"One of the options is also to allow self-certification by a taxpayer," the official added.

Centre is likely to take a few additional days to release the clarifications for taxpayers. "We cannot comment on the timeline, but we are trying our best to release it by July 1," the official added.