May 25, 2023

Good morning. In today’s either/view, we discuss whether levying a 20% tax on international credit card transactions is the right move. We also look at the grant received by Andhra Pradesh, among other news.


Is levying a 20% tax on international credit card transactions the right move?

Vacations are a time to de-stress and relax. Undoubtedly, most of us look forward to a respite from our daily hustle. All the more so after years of being restricted indoors due to the Covid19 pandemic. Part of the thrill is visiting a new place, experiencing the culture, etc. Then there’s the shopping. Showering your hard-earned money on gifts and souvenirs.

That spending could get costlier if you’re an avid credit card user abroad. The government has decided to impose a higher rate of Tax Collected at Source (TCS) of 20% on expenditures through international credit cards. It did so by amending the Foreign Exchange Management Act (FEMA) to include international credit card spending overseas under the Liberalised Remittance Scheme’s (LRS) ambit. The government wants to ensure citizens pay their fair share, but experts call it an ill-advised move.


Let’s start with the Liberalised Remittance Scheme. It was introduced by the Reserve Bank of India (RBI) in 2004 on the recommendation of the Tarapore Committee. It’s essentially a streamlined process for Indian citizens to send money outside India. LRS has been an essential tool to facilitate international trade and capital flows in and out of India.

Earlier, using international credit cards abroad wasn’t included in the overall limit under the LRS. The 2023 Union Budget proposed a 20% TCS on foreign outward remittance under LRS, except for education and medical expenses. The previous rate was 5% on foreign outward remittances above ₹7 lakh.

The LRS allows Indians to remit up to ₹2.05 crore per financial year for current or capital account transactions. Exceeding this limit requires prior permission from the RBI. If someone wants to invest in property or shares, the LRS deems them capital account transactions.

The remittance amounts under the LRS are large. In 2021-22, $19.61 billion was remitted under the LRS. It was a steep climb from the $12.68 billion in 2020-21. This tracks. Post-pandemic, credit card payments skyrocketed past debit card payments. Per RBI data, credit card payments surged to over ₹10.49 lakh crore for the first nine months of FY2023. People are spending a lot after lockdown restrictions were eased.

Practically speaking, what changes? For starters, Indians must claim credit for the tax payment when filing their annual income tax returns in India. When it comes to purchases, if a foreign company offers an Indian customer the price in Indian rupee (INR) and the person pays using an international credit card, that won’t come under the LRS, and no TCS is levied. What happens when a family pays for an overseas holiday package from an international travel agent in foreign currency with a credit card? The 20% TCS applies.

Will this have a chilling effect on foreign expenditure and make people think twice about spending abroad? Or has the government thought this one out?

VIEW: Average citizen remains unaffected

Previously, payments by debit cards have been treated as LRS. Due to the exemption, credit cards weren’t accounted for under the LRS limit. This led to many people exceeding the limit. There was differential treatment for debit and credit cards. This has now been removed to bring parity and uniformity in capturing total expenditure under the LRS.

Part of the government’s reasoning is that the RBI noticed instances where international credit cards were being issued above the $250,000 LRS limit. This was a loophole that needed to be closed. The finance ministry also noted that foreign remittances under LRS doubled in FY23 to $24 billion compared to three years ago. Half of this is on foreign travel alone.

After some grumbling in the wake of the government’s announcement, the finance ministry clarified that the changes didn’t apply to the existing exemptions for medical and education expenses. Broadly speaking, this rule change will mostly affect high-net-worth individuals. They’re the ones who are likely to invest in real estate and stocks outside India and remit their own funds abroad.

COUNTERVIEW: It’s not well thought-out

The government’s concerns over tracking these international transactions are understandable. However, experts feel a nominal tax would’ve done the job. If the concern is excess foreign exchange outflows, why not just reduce the LRS limit? That would’ve sufficed. If the government intends to deter people from online payments and push them to buy dollars, then its mission is accomplished.

The expunged Rule 7, which exempted international credit card transactions from restrictions, was introduced as a liberalisation measure. Its removal is at odds with India’s current growing economy and stems from a protectionist mindset – something India is trying to distance itself from. Thanks to this decision, any gains made with cashless transactions will be reversed. The cost of money in India is high compared to developed economies. For small businesses, it’s an added burden since they often suffer from low liquidity.

While the government has taken no significant steps to hold billionaire fugitives accountable for owing thousands of crores, the common tax-paying and law-abiding citizen has to face the burden of this new decision. Even TV Mohandas Pai, a vocal supporter of the Bharatiya Janata Party, criticised the 20% TCS decision. If India’s economy is to be taken seriously, this sort of micro fidgeting won’t solve corruption or help in the ease of doing business.

Reference Links:

  • What Is 20% TCS On Credit Cards? How Will It Impact Your Foreign Trips? – India Today
  • Credit card payments on foreign tours may be brought under LRS to ensure compliance with TCS – Economic Times
  • Govt clarifies payments abroad for up to ₹7 lakh will not be taxed – Hindustan Times
  • India says no rollback of 20% TCS on international transactions using credit cards – CNBC TV18
  • Government takes revenge for ‘Revenge Travelling’ – Here’s how – Financial Express
  • Experts criticise decision to tax credit card usage in foreign countries – Hindustan Times
  • Clarity needed on TCS levy on credit card payments, says tax experts – Business Standard

What is your opinion on this?
(Only subscribers can participate in polls)

a) The government is right to introduce the 20% TCS on international credit card transactions.

b) The government is wrong to introduce the 20% TCS on international credit card transactions.


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Zira ethanol case drags on (Punjab) – Punjab government still hasn’t submitted its reply to the National Green Tribunal (NGT) regarding the Zira ethanol unit case, resulting in a rescheduled hearing with the Public Action Committee (PAC). Plans are underway to permanently close a distillery owned by Shiromani Akali Dal’s former MLA, Deep Malhotra. PAC members criticised the Bhagwant Mann-led government for stalling even after the Central Pollution Control Board (CPCB) declared water from borewells abutting the Malbros International Private Limited distillery unfit for consumption.

Why it matters: Earlier, the Punjab Pollution Control Board (PPCB) had deemed the water in villages fit for drinking. However, the distillery in question was shut down last year on July 24 after nearby villagers complained of contaminated borewell water. The CPCB confirmed the villagers’ suspicions and reported that the unit was polluting borewells in the area by channelling its toxic chemical effluents into them.

Biggest grant from the centre (Andhra Pradesh) – After much criticism from non-BJP states for withholding grants, the centre has allocated ₹10,460.87 crore to Andhra Pradesh as compensation towards the revenue deficit faced by the state because if its bifurcation and the creation of Telangana. Chief Minister Y S Jagan Mohan Reddy’s office announced that the capital will finance the state’s development programs.

Why it matters: This is the biggest-ever tranche of funds the state has seen since its bifurcation in 2014. CM’s advisor Sajjala Ramakrishna Reddy clarified that per the Andhra Pradesh Reorganisation Act, 2014, the compensation is the state’s right and the centre’s duty. The CM has reportedly visited the centre several times to discuss the funds.

Bus unions raise fare hike issue (West Bengal) – Five private bus unions in West Bengal have appealed to the Transport Minister, Snehasis Chakraborty, seeking immediate redressal of the fare hike issue. The last fare revision was conducted in 2018. The unions have asked the government to initiate a fare-revision. The unions include the West Bengal Bus and Minibus Owners Association (WBBMOA), the Joint Council of Bus Syndicates (JCBS), the Bengal Bus Syndicate (BBS), the Minibus Owners Co-ordination Committee (MOCC), and the Intra Region Bus Association (IRBS).

Why it matters: The private bus-minibus industry has been debilitated due to low fares and the adverse effects of the pandemic on public transportation. Over half the bus fleets in several routes within the city and state have been out of service. Auto-rickshaws and e-rickshaws mushrooming near bus stops further increased the bus operators’ concerns.

Defamation notice to farmers (Maharashtra) – Indapur Dairy and Milk Products Limited, Sonai’s parent company, has formally urged the Solapur Superintendent of Police to act against farmers who allegedly slandered the dairy on social media and portrayed them as “villains”. Farmers in and around Solapur have been protesting the dairies’ revision of procurement prices from ₹37-₹38 to ₹34-₹35. Sonai has also sent legal notices to the farmers and asked for police security for its milk tankers.

Why it matters: The Indapur dairy argued that they were compelled to pull the prices down due to the rising supply and shrinking demand factors. Sonai isn’t the only dairy to be blamed for it, as the drying market liquidity has affected all dairies.

Taking stock of violence (Manipur) – On Tuesday, the General officer commanding-in-chief (GOC-in-C) of the Indian Army’s Eastern Command, RP Kalita, and security adviser to Manipur chief minister, Kuldip Singh, visited Churachandpur – the trigger centre of the violence that began on May 3 – to assess local sentiments. The locals welcomed them with placards and slogans insisting on a separate administration for Kukis.

Why it matters: This is the first time any central or state leader has visited Manipur after violence erupted, leaving 74 people dead and injured 45,000. The discord between Kukis and Meiteis has a historical and psychological significance. Kukis’ emboldened demand for a separate administration stems from unresolved grievances and fear of survival in the Meitei-dominated state.


44% – The percentage of coal-fired power generation supported by the Hindu Kush-Himalayan water system across 16 countries.