Earlier to most of us TCS meant the Indian software giant. However, since Budget 2023, it also has come to mean tax collected at source.
Budget 2023 raised the TCS collected on international remittances under the liberalized remittance scheme (LRS) to 20 per cent from five per cent except for certain exemptions. Initially, credit cards were included under TCS but later it was clarified that they would not come under the ambit of TCS.
However, foreign credit card transactions are expected to be subject to TCS going ahead once the banks are ready. Something regarding this might be announced in the upcoming budget.
No TCS On Payment Up To Rs 7 lakh: If the expenditure on foreign travel made through a credit card is within the threshold of Rs 7 lakh, it does not attract any TCS.
20 Per Cent TCS On Payment Exceeding Rs 7 lakh: If the expenditure on foreign travel made through a credit card exceeds Rs 7 lakh, it attracts TCS at 20 per cent.
How To Save on TCS
When you are booking a foreign tour package, if the price is more than Rs 7 lakh in a financial year, you will have to pay a 20 per cent TCS.
“You won't have to pay TCS if you buy your flight ticket directly from airlines like Air India, Vistara, or IndiGo. Likewise, booking your hotel through the hotel's website and paying with a debit or credit card will not incur TCS as long as the amount is within the Rs 7 lakh limit,” says Abhishek Soni, CEO, Tax2Win, an income tax portal.
In other words, if you book your trip yourself without buying a tour package, you can still claim the Rs 7 lakh exemption if the total expenditure using the credit card remains less than Rs 7 lakh.
“The limit of Rs 7 lakh is separate for every individual. Therefore, the total exemption can be increased by distributing the expenses among the members travelling,” says Soni.
So let us say a trip abroad for a family of four costs Rs 12 lakh. If you take a tour package you have to pay 20 per cent TCS on the amount since it exceeds Rs 7 lakh. However, if you book a DIY trip and you and your spouse spend Rs 6 lakh each on your credit cards, you have to pay TCS at the rate of five per cent.
Family members can distribute expenses among multiple individuals to stay within this limit. Friends or family abroad can also incur expenses, which you can reimburse in cash later. This way you can take care of expenses incurred during the trip abroad.
It is important to understand that TCS is not an additional tax but an advance tax collected on your behalf. It just locks in your money. You can adjust the TCS credit against your actual tax liability or claim it as a refund if you have no tax liability.