Overseas travel costs for Indians set to rise on credit card tax

Mumbai: India has decided to levy a higher tax on international card spends from July as the government aims to clamp down on under-reporting of income by the rich, potentially making overseas travel costlier.

Foreign currency payments made through credit cards will attract a 20 per cent tax collected at source from 5 per cent earlier, according to a notification from the Ministry of Finance. The amount collected at source can be claimed by individuals as refunds after filing income tax returns for the year.

Many citizens took to social media to seek clarity on how their international travel budgets would be impacted by this move and criticize the hassle of extra paperwork while claiming refunds for the tax deducted.

The new amendment brings such international payments under the Liberalized Remittance Scheme or LRS, which allows all resident individuals to freely transact up to $250,000 per financial year. “Instances have come to notice where the LRS payments are disproportionately high when compared to the disclosed incomes,” the ministry said in a statement.

The move is part of the government’s efforts to strengthen the tax collection system in the world’s most populous nation and it will bring the levies on credit cards at par with those on overseas usage of debit cards, forex cards and bank transfers. Education and medical expenses will continue to be taxed at 5 per cent.

Some media reported that possible reasons for the increased tax could be to boost the domestic tourism industry and conserve foreign currency reserves. After being housebound for a couple of years during the pandemic, Indians have resumed foreign travels in big numbers.