The use of credit cards in foreign countries by Indian residents will now be counted within the $250,000 liberalised remittance scheme (LRS) limit of the Reserve Bank of India, from July 1, 2023.

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The government in consultation with the RBI has moved to amend the Foreign Exchange Management (Current Account Transaction) Rules by making credit card transactions also a part of the RBI’s LRS limit. Any foreign remittance or transactions above the set limit will need prior approval from RBI. So far international credit card spending was excluded from the LRS ceiling.

As per the amended rules, Indian citizens will have to pay more taxes towards Tax Collected at Source (TCS) on credit card transactions done outside the country.

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International credit card transactions to count under RBI's $250,000 p.a. foreign remittance limit

Since the TCS provisions will apply to all LRS remittances and foreign credit card transactions, it has stirred a debate on social media. For instance, the amended rules mean that it will also apply if people use their credit card to buy coffee on a foreign holiday or pay for US or UK magazine subscriptions online in dollars or pounds.

The only transactions barred from the LRS limit are transactions for medical treatment or education.

Earlier, the tax was also hiked from 5 percent to 20 percent from this fiscal, causing further problems for taxpayers. Although the TCS paid can be claimed as refunds, it may cause cash flow issues for citizens in the short term, as per tax experts.

Criticising the move, one user said that it will have people move back to carrying dollars and the move will hurt the global Indian citizen.

“20% tax collected at source (TCS) on international credit card transactions will move us back to carrying dollars and forex cards. We are the world leaders in the digital economy and such a move would hurt the global Indian citizen. This policy needs a rethink!” read the comment.

20% tax collected at source (TCS) on international credit card transactions will move us back to carrying dollars and forex cards. We are the world leaders in digital economy and such a move would hurt the global Indian citizen. This policy needs a rethink!

— Prateek Kanwal (@prateekkanwal) May 18, 2023

Another user proposed some of the solutions that the Indian citizens could take to seek relief. However, both the options were quite unrealistic as the user suggested, “Solution:

Wait for a credit card with a 30% reward rate!

Don't travel overseas, just enjoy your tourism in India!

What else?”

A third user had some suggestions for the government. “The Govt should focus on taxing cash transactions to plug the tax loophole, instead they’re taxing credit card transactions abroad and making it a complete nuisance,” read the comment.

The Govt should focus on taxing cash transactions to plug the tax loophole, instead they’re taxing credit card transactions abroad and making it a complete nuisance @PMOIndia @nsitharaman @nsitharamanoffc @narendramodi @TOIIndiaNews @EconomicTimes https://t.co/ygQMU2q6V0

— Sushil Shamlal Wadhwa (@WadhwaSushil) May 18, 2023

A few others also drew the attention that those who will be impacted by the decision will take steps or do ‘Jugaad’ to escape the heavy impact.

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“Social media commentary is all about making a mountain of a molehill. Those who are really impacted have already taken measures or will be doing so in time,” a user wrote.

Don't underestimate the power of Indian Jugaad to counter the 20% TCS rule on credit card transactions from 1st July, 2023.

Social media commentary is all about making mountain of a molehill. Those who are really impacted have already taken measures or will be doing so in time.…— Amit Kumar Gupta (@amitgupta0310) May 18, 2023

Meanwhile, some savvy users shared their feelings through memes.

20% TCS on International Credit Card Transactions!

Meanwhile, Government to Taxpayers.... pic.twitter.com/xgXf6hDPVh— Sushant Bharti