Credit Card Holders Government Flip Flop On TCS

Government Flip-Flop on TCS Confounds Credit Card Holders Information You Must Have

These new guidelines of the Tax Collection at Source (TCS) have created much confusion in the minds of holders of credit cards. This is due to the government’s inconsistent positions on whether foreign transactions through credit cards are liable to TCS. This has left many people confused about the status of their transactions, especially those involving transactions between India and other countries.

The author initially proposes one idea but then reverses that idea in his next discussion.

This new TCS rule regarding cross-border credit card transactions was announced by the Indian government on the 16th of May. This rule aimed at bringing such transactions under the Reserve Bank of India’s (RBI) Liberalized Remittance Scheme (LRS), under which TCS would be levied on these transactions.

However, just a few days thereafter, on May 19, 2021, the government offered a short-term relief by making provisions for foreign currency transactions below Rs 7 lakh per financial year from TCS on both debit and credit cards.

This confusion was taken to another level on June 28 when the finance ministry completely reversed the directive. In the announcement, it was mentioned that credit card transactions would not be included in the LRS and therefore would be beyond TCS. This kind of sudden reversal also left many confused about the current state and importance of these rules.

Present Status of TCS on Credit Card Transaction

Besides, the Finance Ministry has clarified in its latest announcement on June 28 that TCS will not be implemented on international credit card transactions, which happen when the cardholder is out of India.

There are also still some doubts in regards to which international transactions involving credit cards operating from India will be subjected to TCS. This has resulted in variations in perceptions among the various stakeholders, such as the experts and the financial institutions.

TCS and Its Applicability Views of Several Experts

The given opinion regarding the TCS applicability perfectly demonstrates how diverse the opinion can be. According to Sumanta Mandal, the founder of TechnoFino, this implies that no TCS will apply to the international credit card transactions, whether done from India or elsewhere.

He noted that the first rule that was made was to replace Rule 7 of the FRER of the Foreign Exchange Management Rules, 2000, and stated that the rule was later reversed on June 28. Rule 7 previously excluded credit card transactions from LRS and therefore from TCS.

Ankit Jain, Partner at Ved Jain & Associates, also holds the same view as mentioned by his co-partner. He observes that because of the technical difficulties that have been observed in banks, the idea of implementing the LRS plan to include foreign currency transactions through credit cards has also been shelved.

Therefore, these transactions such as those involving global e-commerce purchases, online subscriptions, or international travel bookings will not fall under TCS.However, Gautam Nayak, Partner at CNK & Associates LLP, opines that the international credit card transactions done from India are still come under LRS and hence liable for TCS. 

Government needed to provide more clarity.

Due to confusing messaging from official announcements and press releases, the clarification from the government would be helpful. This confusion ensued from the differences in the different interpretations of the FAQs that were released in May and the press release in June.

At the moment, credit card holders and the financial institutions simply have to manage these uncertainties as best as they can, using the available data.

Moving Forward

By being informed and consulting experts on the issue of regulatory changes, credit card holders will be in a position to understand how such changes may affect their transactions.

It will be vital to maintain proper records of the international and high-value transactions that will be required for tax purposes. Also, the updates on the government will assist in the management of changes in the rules of TCS in the future.

Conclusion

The government’s confusion regarding TCS for international credit card transactions has made that situation ambiguous for card holders. Although the current update offers some consolation by not taxing such transactions through TCS if done internationally, it continues to remain unclear about those carried out from India. It will become critical to stay up to date with regulatory changes and seek advice from financial professionals on how to operate within these changes.

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