TCS on global credit cards: HDFC Bank says clearing real-time checks tough

Working with industry, quickly building internal systems to facilitate LRS reporting, says lender

HDFC Bank, the largest issuer of credit cards in the country, said validating real time checks on LRS (liberalised remittance scheme) limits with RBI to process transactions is one the key challenges in implementing to the new rule that mandates 20 per cent tax collected at source (TCS) on outward remittances.

The largest private sector lender also said while it is building internal systems quickly to facilitate LRS reporting, also working with industry players to resolve the issues.

“Complying with the regulatory requirement of LRS/TCS involves systemic changes, new development and testing of the core and surround systems,” an HDFC Bank spokesperson said in a response to queries by Business Standard.

“Some of the challenges will be validating real-time checks for ITR / LRS limits with RBI to process transactions, handling disputes and chargebacks, etc.  As an industry we are working on industry wide solutions for these,” the spokesperson added.

In May, the government decided that spending in foreign exchange through international credit cards would be covered under the RBI’s Liberalised Remittance Scheme (LRS), under which a resident can remit money abroad up to a maximum of $250,00 per annum without the authorisation of the Reserve Bank of India (RBI).

The Budget for FY24 hiked the TCS rate to 20 per cent, from 5 per cent, for overseas tour packages and funds remitted under the LRS (other than that for education and medical purposes). Later, the government clarified that no TCS would be levied on international spending of up to Rs 7 lakh a year by using credit cards.

HDFC Bank said banks have sought multiple clarifications from the government and have received responses on a few of those issues raised.

“There are multiple clarifications that Industry has sought on this issue. We have received clarifications on a few and are awaiting responses for the rest,” the bank said.

“As a card issuer, HDFC bank is quickly building internal systems to facilitate LRS reporting of & TCS levy on international credit card transactions, in consultation with industry,” the bank added.

HDFC Bank has over 18 million credit cards as on May 2023, latest RBI data showed. There are close to 88 million credit cards issued by banks operating in India so far.

Sources had told Business Standard that the finance ministry is ‘evaluating issues raised by banks and that a decision to extend the July 1 deadline is yet to be taken, while adding a deadline extension cannot be ruled out.

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

Furthermore, unlike transactions through a bank account in which the tax would be automatically debited from the bank account, in the aforementioned scenario, since the amount could be large, the credit card might not have the limit to deduct the tax amount.