Clarity needed on TCS levy on credit card payments, says tax experts

Tax experts on Monday sought clarity on the applicability of TCS on foreign payments of over Rs 7 lakh made via credit cards, saying it would be difficult for the I-T department to differentiate between personal and business visits.

The government on May 16 issued a notification under Foreign Exchange Management Act (FEMA), which effectively imposed a 20 per cent TCS on international credit cards (ICC) spends in foreign exchange. ICC spending was brought under the RBI's liberalised remittance scheme (LRS).

However, expenses incurred by an employee on a business visit when such expenses are borne by the employer, do not come under LRS and hence were exempt from 20 per cent Tax Collected at Source (TCS).

Amid backlash from various sections of people, the government on May 19 decided to exempt ICC payments up to Rs 7 lakh a year from TCS.

Experts, however, feel still there are grey areas which are needed to be addressed by the Income Tax department.

Nangia Andersen India, Partner, Neeraj Agarwala said one of the major challenges of the applicability of TCS on international credit card usage is that of compliance.

"In this case, banks issuing credit cards will be responsible for collecting 20 per cent TCS from July 1. This may be difficult for banks to track, and they may have to rely on declarations by the credit card users themselves as to the nature of the payment. They will also have to build an IT system to verify particulars of payment, capture this data and ensure compliance in a timely manner," Agarwala said.

He further said prima facie, it would be difficult for the I-T dept to differentiate between business and personal overseas visits and the onus will be on the user to establish the particulars of payment.

EY India, National Tax Leader, Sameer Gupta said since the object of the increase in TCS rate on LRS transactions is to address cases of disproportionate remittances as compared to disclosed incomes, a nuanced course would have been to apply a higher TCS rate to non-filers rather than across the board to all remitters.

"The cash flow issue for salaried employees needs to be addressed - the employers should be permitted to adjust the salary TDS with the amount of TCS paid by the employee.

"Also, while the Government has clarified that foreign business visits by employees are not covered by LRS, the operational mechanics of distinguishing between official and personal expenditure on international credit/debit cards need clarity," Gupta added.

Grant Thornton Bharat, Partner, Tax Riaz Thingna said a holistic reading of the changes raises a couple of questions.

"The deletion of the exception for credit card payments under current account regulations means that it will still be difficult for those on a business trip to use international credit cards for business expenses as they may be included within the employee's LRS limit," Thingna added.