June signals the start of the Summer in Europe and the USA and I am sure many Indian travelers are eagerly planning their trips. However, recent amendments to the Foreign Exchange Management Rules have brought concerning changes for those who rely on their credit cards for international expenses. Effective from July 1, 2023, there will be a 20% Tax Collected At Source (TCS) On All International Card Spends exceeding Rs 7 lakh a year and will now be subject to a higher tax collected at source (TCS) rate of 20 percent. This move by the Finance Ministry has sparked debates and raised concerns among middle-class families, who now face increased upfront costs for their international travel.
TCS and Its Impact: Tax collected at source (TCS) is a deduction made by the tax authority on certain expenses, serving as a means to monitor financial transactions. Unlike tax deducted at source (TDS), which applies to income, TCS applies to specific expenses, including international card spending. The 20% Tax Collected At Source (TCS) On All International Card Spends exceeding Rs 7 lakh a year aims to track and regulate overseas spending by Indian residents. However, this policy change poses challenges for travelers, as the deducted TCS amount can only be reclaimed when filing income tax returns, tying up a significant portion of their funds for possibly up to 8 to 9 months
Budgetary Pressure on Middle-Class Families: For middle-class families aspiring to travel abroad, the burden of higher upfront costs can be substantial. Consider a typical family of four with an estimated spend of Rs 1 lakh per passenger. Under the new regulations, this would mean blocking nearly Rs 80,000 (Rs 20,000 per person) for 9-12 months. This will get a lot of middle-class families thinking as the amounts are quite significant. Such financial constraints can put a strain on travel budgets and limit the ability of middle-class families to fulfill their dreams of exploring foreign destinations. The changes in the tax laws have been brought around to understand the spending of the rich but I do not see this having any effect on their spending and as usual the middle class and salaried will have to make allowances.
Exemptions and Clarifications: To address the concerns surrounding increased taxes, the Ministry of Finance has provided some exemptions and clarifications. International spends of up to Rs 7 lakh per year made by individuals using credit or debit cards will remain exempt from TCS, even after June 30, 2023. This exemption aims to alleviate the impact on smaller transactions and offer relief to those who engage in moderate international spending. The table shows the percentage of TCS on different elements.
The Way Forward: The amendment to the Foreign Exchange Management Rules has undoubtedly dampened the spirits of Indian travelers. While the government's intention to regulate overseas transactions is understandable, the higher TCS rate poses challenges for middle-class families. It is crucial for the authorities to strike a balance between revenue generation and promoting travel aspirations. As travelers adapt to these changes, they may need to reconsider their budgeting strategies and explore alternative payment options to minimize the impact of increased upfront costs.
So how are you impacted by this change?
Don't forget to leave your comment and Like and Share this article if you found this useful and important to You or your family and friends!
If you have any questions on personal finance and investing leave a message on any of the below mediums and we will help give wings to your financial dreams.
@stayinformedwithsanil | www.wiremeshin.com