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tcs: Clarity needed on TCS tax on credit card payments, distinction between business and personal visits: tax experts – Mintpaisa

On Monday, tax experts sought clarification on the applicability of TCS to foreign payments over Rs 7 lakh made by credit card, saying it would be difficult for the IT department to differentiate between personal and business visits . On May 16, the government issued a notification under the Foreign Exchange Management Act (FEMA), which effectively imposed a 20% TCS on international credit card (ICC) spending in foreign currency. ICC expenditure has been placed under the Liberalized Remittance Scheme (LRS) of the RBI.

However, expenses incurred by an employee during a business visit when these expenses are borne by the employer do not fall under the LRS and are therefore exempt from 20% of withholding tax (TCS ).

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

Experts, however, believe there are still gray areas that need to be addressed by the income tax department.

Nangia Andersen India, Partner, Neeraj Agarwala, said that one of the main challenges with the applicability of TCS to the use of international credit cards is that of compliance.

“In this case, credit card issuing banks will be responsible for collecting 20% ​​of the TCS from July 1. This may be difficult for banks to track, and they may have to rely on statements from card users. They will also need to set up an IT system to verify payment details, capture that data and ensure timely compliance,” Agarwala said.

He further stated that at first glance, it would be difficult for IT to differentiate between business and personal visits abroad and that it would be up to the user to work out the payment details. EY India National Tax Leader Sameer Gupta said that since the purpose of raising the TCS rate on LRS transactions is to address instances of remittances disproportionate to disclosed income, a nuanced course would have was to apply a higher TCS rate to non-declarants rather than to all shippers.

“The cash flow problem for employees needs to be addressed – employers should be allowed to adjust the salary TDS with the amount of TCS paid by the employee.

“Furthermore, although the government has clarified that visits to foreign companies by employees are not covered by the LRS, the operational mechanisms for distinguishing between official and personal expenditure on international credit/debit cards need to be clarified. “, added Gupta.

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

“The removal of the exception for credit card payments under current account regulations means that it will still be difficult for people traveling on business to use international credit cards for business expenses. , as they may be included in the employee’s LRS limit,” Thingna added.


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