Union Budget 2024: Overseas credit card spending above ₹7 lakh may be taxed 20%

The Union Budget 2024 aims to discourage outflow of money through credit and may amend the Income Tax Act to tax overseas credit spending over ₹7 lakh.

The Union Budget 2024, which is scheduled to be presented on July 23 may bring overseas credit card spending above ₹7 lakh under the Liberalised Remittance Scheme (LRS), which means that the government would be able to collect a 20% tax on it, Moneycontrol reported, citing an unnamed government official. This is also to discourage outflow of money and may be part of an amendment to the Income Tax Act.

India saw $31.73 billion worth of outflows under LRS in the financial year 2023-24.

What is the Liberalised Remittance Scheme (LRS)?

The Reserve Bank of India’s (RBI) LRS scheme allows an Indian resident to transfer up to $250,000 outside India in a financial year.

Expenses paid internationally using debit cards, forex cards, or other payment methods incur a 20% tax collected at source (TCS) once they go over ₹7 lakh per person per financial year.

However, credit card transactions were exempt from being taxed under LRS rules. This was because debit cards were directly linked to bank accounts unlike credit cards. This exemption was also for giving time to banks for establishing infrastructure to monitor international credit card transactions.

The tax for education and health expenditures abroad is only expected to be taxed at a fixed 5% rate, even for amounts exceeding ₹7 lakh.

How much outflow of funds does India see?

India saw $31.73 billion worth of outflows under LRS in the financial year 2023-24, which was nearly a 17% rise from the previous year, according to RBI data.

The Interim Budget 2024 presented on February 1 this year, did not include provisions to tax international credit card transactions under the Tax Collected at Source (TCS) framework.

The Union Budget 2023 raised the TCS rate on foreign remittances from 5% to 20%, with some exceptions, with the revised rates becoming operational from July 1, 2023, according to a Business Today report.