20% Tax on International Credit Card Usage Abroad Starting October 1: Impact and Rationale

Starting from October 1, the Reserve Bank of India (RBI) will introduce a 20% Tax Collected at Source (TCS) on the use of international credit cards for foreign travel and overseas transactions. This move is expected to result in higher costs for foreign travel and shopping abroad, as it aims to regulate the outflow of foreign currency. The tax will be applicable to all credit card transactions conducted abroad.

TCS, or Tax Collected at Source, is a mandatory 20% tax charged by banks and financial institutions on behalf of the RBI when customers make payments in foreign currencies. For example, if an individual makes a Rs 10,000 purchase with an international credit card, they will be required to pay Rs 2,000 in tax. The bank that issued the credit card will collect this amount from the customer and remit it to the government. TCS will be levied on each transaction.

The primary objective behind imposing TCS is to enhance the monitoring of money outflows from the country, allowing the RBI to accurately track the movement of foreign currency. Additionally, the high TCS rate is expected to discourage individuals from engaging in international credit card transactions, thereby helping safeguard India’s foreign exchange reserves.

The introduction of TCS is anticipated to significantly impact credit card transactions in the upcoming financial year. In the fiscal year 2022-23, credit card transactions saw a substantial increase of 47.2% compared to the previous year, with a total expenditure of Rs 14 lakh crore. These transactions encompassed various categories, including e-commerce purchases, foreign travel, shopping, and dining.

Given the substantial surge in transactions, the implementation of the 20% TCS is likely to reduce these volumes considerably. Meanwhile, the government aims to generate Rs 2,800 crore in revenue through this tax in the upcoming financial year.

Back to top button

Adblock Detected

Please consider supporting us by disabling your ad blocker