While credit card purchases made outside of India would no longer be subject to VAT collected at the point of sale, any foreign transaction made from India will be subject to the charge.
Users or consumers who purchase foreign goods and services from an international merchant must pay 5% up front.
The government’s announcement in the Budget this year to include all international credit card transactions in the liberalised remittance scheme, which would have resulted in a higher tax collected at source (TCS) rate of 20% for transactions exceeding Rs 7 lakh in a year, drew criticism.
The finance ministry said yesterday that the implementation of a higher TCS of 20% on LRS and abroad vacation packages has been postponed until September 30. The revised pricing will take effect on October 1.
It also issued a clarification on the matter through a series of tweets. A release said, “In response to the comments and suggestions, it has been decided to make suitable changes. Firstly, it has been decided that there will be no change in the rate of TCS for all purposes under LRS and for overseas travel tour packages, regardless of mode of payment, for amounts up to ₹ 7 lakh per individual per annum.”
“It has also been decided to give more time for the implementation of the revised TCS rates and for inclusion of credit card payments in LRS,” it added.
According to the most recent notification, the tax collected at source would be increased to 20% beginning October 1 for expenditures above Rs. 7 lakh per person. The new tax rate will apply to overseas tour packages and purchases made using methods other than credit cards.
Experts feel that a clear message about keeping credit cards out of the scope of the liberalized remittance system will be a major boost, assuring the public, lenders, and the tourism industry that their proposals are being listened and executed.