Banks seek clarification from govt before TCS on credit cards kicks in

Banks are particularly concerned about use of several cards and bank accounts to make a simple remittance

Banks have sought several clarification from the government ahead of the Tax Collected at Source (TCS) regime kicks in for international usage of credit cards.

According to bankers, there is ambiguity on several fronts on which clarity is needed, particularly, if the amount is remitted using several cards and bank accounts.

“We have sought some clarification on this issue. We are yet to get any revert,” a senior banker from a large bank said.

“If it is done through a debit card, the bank has access to the bank account from where the tax can be deducted. Here it is a credit product. What if the customer reverses the transaction?” the person said.

In May the government decided that spending in foreign exchange through international credit cards will be covered under the RBI's liberalised remittance scheme (LRS), under which a resident can remit money abroad up to a maximum of $250.000 per annum without the authorisation of the Reserve Bank.

This year’s budget hiked TCS rates to 20 per cent, from 5 per cent on overseas tour packages and funds remitted under LRS (other than for education and medical purposes). The new tax rates will come into effect on July 1. Later, the government clarified that no TCS will be levied on international spending of up to Rs 7 lakh a year by using credit card.

According to bankers, a person can use several credit cards of different banks to make the payment. In such case, a particular bank will not know what a person has spent through other banks’ credit cards.

Furthermore, unlike transactions through a bank account where the tax is automatically debited from the bank account, in this case since the amount is large, the credit card may not have the limit to deduct the tax amount.

“In this case, it’s a large sum of money. The credit limit may not be available. Second, if someone has Rs 10 lakh from a bank account and additional Rs 5 lakh from card account – so linking that and linking all the bank accounts across the universe, that integrator is also not there,” said a senior banker from a mid-sized bank.

“If 7 lakh is remitted from 5 different credit cards, how will we come to know that,” the person said.

The banks raised these issues with the Indian Banks’ Association which in turn communicated the same with the government. According to sources, the banks want a Frequently Asked Questions (FAQ) of the standard operating procedure on this issue.

“From a broad policy to the fine print of SoP – there are a lot of questions which are unanswered right now which should be answered,” said another banker.

Bankers said since it is a statutory requirement they have to go ahead with the July 1 implementation but expects to get clarity before that.