Foreign Exchange Industry Calls for Clarity on Proposed 20 percent TCS: Seeks Parity with Debit and Credit Cards

The foreign exchange Industry has expressed serious concerns about the applicability of 20% Tax Collection at Source (TCS) under the Liberalized Remittance Scheme (LRS) effective from July 1, 2023. On 19^th May, 2023, Ministry of Finance clarified that transactions conducted overseas using debit and credit cards would be exempted from TCS up to a small value of Rs. 7 lacs per financial year. However, there was no specific clarification provided regarding small value transactions involving Foreign Currency Cash, Wire Transfers through Banks, Prepaid Forex Cards, and other International payment options widely used by individuals during overseas trips for leisure or employment. The All India Association of Authorized Money Changers & Money Transfer Agents have submitted a representation to the finance ministry regarding the aforementioned concerns.

Bhaskar Rao P, General Secretary of The All India Association of Authorised Money Changers & Money Transfer Agents, said, "The money exchange industry expects the government to ensure a level playing field for all overseas transactions with small values of Rs. 7 lakhs, regardless of the instrument used. Common people utilize foreign currency cash (up to the maximum of USD 3000), prepaid Forex Travel Cards, and wire transfers, while the upper class uses international debit and credit cards."

According to the immigration data published by DGCA, more than 60 percent of overseas travelers are first time flyers. These people are from the economically weaker section from the bottom of the pyramid who are less educated, who do not hold debit or credit cards and hence deserve parity with the debit and credit card holders. The notification will directly impact individuals travelling abroad for employment especially the labour/working class, who generally belong to the low-income group and are ineligible for credit cards. These travelers generally procure foreign exchange in the form of cash or prepaid card from money exchange outlets operating at international airports or city outlets. The imposition of 20% TCS will have a major impact on them as they do not fall under the income tax bracket.