tcs on debit and credit cards

20% Tax on using Debit, Credit, Forex cards Explained on Foreign transactions

In India, starting from July 1, 2023, the government has introduced a 20% Tax Collected at Source (TCS) on certain foreign remittances and overseas tour packages. This change, part of the Finance Act, 2023, is designed to widen the tax base and monitor high-value transactions.

Key Points of the 20% TCS Implementation

Where It Applies:

  • Foreign Remittances: If you’re sending money abroad under the Liberalized Remittance Scheme (LRS) for purposes like travel, investing in property or shares, or giving gifts, a 20% TCS will apply. This excludes remittances for education and medical treatment.
  • Overseas Tour Packages: If you purchase an overseas tour package, the 20% TCS applies regardless of the amount.

Exemptions and Lower Rates:

  • Education and Medical Treatment: If you’re sending money abroad for education or medical treatment and the amount exceeds INR 7 lakh in a financial year, a lower TCS rate of 5% applies.
  • Small Remittances: For remittances for other purposes up to INR 7 lakh in a financial year, no TCS is applied.
  • Tour Packages: The 20% TCS is always applicable for purchasing an overseas tour package, no matter the amount.

How It Works:

  • Collection by Banks: TCS is collected by the bank or financial institution handling your remittance.
  • Card Transactions: For credit and debit card transactions, the card issuer collects the TCS when you make a purchase.

Getting Your Money Back:

  • Tax Adjustments: The TCS you pay can be adjusted against your total tax liability when you file your income tax return.
  • Refunds: If the TCS collected is more than what you owe in taxes, you can claim a refund for the excess amount.


  • For Individuals: Make sure TCS is correctly collected and reflected in your tax accounts.
  • For Banks and Card Issuers: They are responsible for collecting and sending the TCS to the government.

Debit Cards, Credit Cards, and Prepaid (Forex) Cards

FeatureDebit CardCredit CardPrepaid Card
Source of FundsDirectly linked to a bank accountBorrowed funds, to be repaid laterPreloaded funds
Spending LimitLimited to available bank balanceCredit limit set by the issuerLimited to the preloaded amount
Interest ChargesNoneCharged if balance is not paid in fullNone
FeesPossible ATM fees, overdraft feesAnnual fees, interest charges, late feesReload fees, purchase fees, inactivity fees
Credit ImpactNo impact on credit scoreAffects credit scoreNo impact on credit score
Approval ProcessRequires a bank accountRequires credit check and approvalGenerally no credit check
RewardsLimited rewardsOften offers rewards, cash back, pointsFew or no rewards
UsageWidely accepted, direct debits possibleWidely accepted, can build credit historyWidely accepted, good for budgeting
SecurityPIN and sometimes chip-based securityPIN, chip, and fraud protectionPIN and sometimes chip-based security
TCS/TDS Applicability20% TCS on foreign transactions above INR 7 lakh in a financial yearNot applicable20% TCS on foreign transactions above INR 7 lakh in a financial year
ProtectionFraud protection, limited liabilityExtensive fraud protectionFraud protection, limited liability
Cash WithdrawalsATM withdrawals, linked to bank balanceATM withdrawals, subject to interest and feesATM withdrawals, limited to balance
Build Credit HistoryNoYesNo
Best ForEveryday transactions, budgetingBuilding credit, large purchases, rewardsControlled spending, budgeting, gifts
20% Tax on using Debit, Credit, Forex cards Explained on Foreign transactions 1 20 tcs on

Example Scenarios

Foreign Travel:

Imagine you’re planning your dream vacation abroad, and you book a tour package costing INR 2,00,000. With the new rules, the tour operator will collect an extra INR 40,000 (20% of INR 2,00,000) as TCS and send it to the government. While it might seem like a hefty amount upfront, this extra money will be adjusted when you file your taxes.

Investment Abroad:

Suppose you want to invest INR 10,00,000 in foreign stocks. Your bank will collect an additional INR 2,00,000 as TCS and remit it to the government. This step helps the government keep track of large foreign investments.

Educational Expenses:

If you’re sending INR 8,00,000 for education abroad, TCS will apply at 5% on the amount over INR 7,00,000. In this case, you’ll pay an extra INR 5,000 (5% of INR 1,00,000), which the bank will collect and remit to the government.


For Individuals:

The 20% TCS might feel like a financial hit initially since it’s collected upfront. However, you’ll get this amount back when you file your taxes. This step ensures that large international transactions are properly tracked.

For Businesses:

If you run a business offering services like overseas tour packages, you’ll need to adjust your systems to collect and remit TCS. This may add some extra steps, but it keeps you compliant with the new rules and avoids penalties.

For the Government:

This policy helps the government monitor and control high-value foreign transactions, making sure that wealthy individuals pay their fair share of taxes. It boosts tax compliance and helps in better revenue collection.


The 20% TCS on foreign remittances and overseas tour packages is a significant move by the Indian government to enhance tax compliance and revenue collection. While it might seem like an added burden, it helps ensure fair taxation and prevents tax evasion. By staying aware of these regulations and keeping good records, you can manage these changes smoothly and avoid any penalties.

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