Credit card payments on foreign trips to cost more with added tax collectible at source

Apart from freedom to travel frequently, credit cards also unlock airport lounge access and free flight tickets for passengers. But it turns out that while reaping rewards for swiping, Indian travellers have been getting away without paying tax collectible at source (TCS).

To address this, India's Finance Minister Nirmala Sitharaman has introduced a bill which will bring credit card payments for foreign trips under the liberalised remittance scheme to deduct taxes.

Foreign trips to get expensive?

This move follows a recent proposal to raise the TCS on foreign tour packages from 5 per cent to 20 per cent, making overseas trips costlier.

The minister highlighted that credit card users were escaping the levy and also told the Reserve Bank of India to devise a system for collecting tax at source.

A proposal to make TCS a form of remittance on outward remittance or money sent out of the country, was included in the Union Budget for 2023.

How does outward remittance work?

Once the bill is passed, travel agents and airlines will be able to deduct tax when a customer is paying for air tickets and foreign tours.

As for the liberalised remittance scheme introduced in 2004, as much as Rs 2.5 lakh can be freely sent abroad.

Anything transaction beyond that limit will require permission from the Reserve Bank of India.