Are you planning to travel abroad soon? If yes, you might wonder how to carry your foreign currency and pay your expenses. You have several options: cash, forex cards, credit cards, or debit cards. But which is the best and the cheapest, considering the increased TCS from October?
Unless you learn more about the exchange rates, transaction costs, TCS rates, and the perks offered by each alternative, making a decision may be difficult.
To make things easier, we’ve reviewed the international credit card vs. forex card in depth. Also, you will learn how the increased TCS from October 1st, 2023, can affect your travel budget, especially if you are availing of any tour packages.
Understanding TCS and Its Changes
Unfurling the Union Budget on 23rd Feb.2023, the Ministry of Finance, in consultation with RBI, brought drastic changes in the existing tax regime, including revised TCS from October 1, 2023.
Tax Collected at Source (or TCS) is governed by Sec 206C of the IT Act. It is a tax collected by the seller of selected goods from the buyer at the time of payment. The rate at which TCS is charged depends on the nature and amount of the transaction.
During tax revision, changes were made to Sub-section (1G) of Sec 206 of the IT Act 1961. Please note that this section provides for TCS on –
1. Sale of overseas Travel Program package
2. Foreign Remittance through Liberalised Remittance Scheme (LRS).
As an aftermath of these amendments to the Finance Bill, two significant changes occurred-
First, the TCS rate increased from 5% to 20% for remittances made through the Liberalised Remittance Scheme (LRS). Individuals can send up to $250,000 abroad in a fiscal year through LRS for various activities such as travel, education, medical treatment, etc.
Second, the Rs. 7 Lacs threshold for overseas trip tour packages was lifted. Therefore, applicable TCS from October 1st will be
|Nature of Remittance||TCS Up to 30th September 2023||TCS from October 1st, 2023|
|For Educational Purposes (funded by a Loan from a Bank/financial institution)||Nil (Up to Rs. 7 Lacs) 0.5% (Above Rs. 7 Lacs)||Nil (Up to Rs. 7 Lacs) 0.5% (Above Rs. 7 Lacs)|
|For Medical Treatment/ Education (other than loan)||Nil (Up to Rs. 7 Lacs) 5% (Above Rs. 7 Lacs)||Nil (Up to Rs. 7 Lacs) 5% (Above Rs. 7 Lacs)|
|For Overseas Tour Package||5% (without any threshold)||5% (Up to Rs. 7 Lacs) 20% (Above Rs. 7 Lacs)|
|For Investment in Foreign Stocks, Cryptocurrencies, etc||Nil (Up to Rs. 7 Lacs) 5% (Above Rs. 7 Lacs)||Nil (Up to Rs. 7 Lacs) 20% (Above Rs. 7 Lacs)|
It is vital to emphasize that domestic mutual funds with international stock exposure will not be regarded under LRS and will thus be excluded from TCS.
How Does TCS from October 1st will Affect Your International Travel Budget?
TCS from October 1st will affect your international travel budget in two ways:
First, it will increase the cost of buying or loading foreign currency on your Forex card.
Say you want to load $10,000 (equivalent to Rs. 7 Lacs considering an exchange rate of Rs. 70 per Dollar) on your Forex card after October 1st,2023. You must pay an extra Rs. 1.4 lakh as TCS (20% of Rs. 7 lakh). This means you will get less foreign currency for the same amount of rupees.
Second, it will reduce the money you can send abroad under the LRS limit.
Say you have sent $200,000 (equivalent to Rs. 1.4 Crores assuming an exchange rate of Rs. 70 per Dollar) abroad in a financial year (from April – Sept).
If you want to send another $50,000 after October 1st, you must pay an extra Rs. 7 lakh as TCS (20% of Rs. 35 lakh). It means that you will have less money left for your other expenses. Therefore, TCS from October 1st can make your international trip more expensive and less affordable.
International Credit card vs. Forex card
Which of the two should you prefer- a Forex Card or an International Credit Card to make foreign travel the revised TCS from October 1st?
Here, it is crucial to understand the essential difference between a Forex Card and a Credit Card
When you purchase a Forex Card, the foreign exchange conversion rate is locked in as soon as you load funds into it. In the event of a credit card, however, the exchange conversion rate is only applied at the time of the transaction.
It means that by using a Forex Card, you are protected against exchange rate fluctuations. The foreign currency exchange rate changes quickly, assuming new figures every morning. So, if Forex offers you financial security, you may sleep well.
But the option of Credit Cards is not less palatable. First, the exchange conversion rate is applicable only at the time of the transaction. Second is the possibility of earning reward points and free lounge access for prolonged use.
Well, it sounds good. But, no matter what card you use in a foreign land, you are often charged a fee over and above the actual transaction value, known as a markup fee. Credit card users using cards outside of India pay a cross-currency markup fee.
Let’s explore the differential TCS rates on International Credit Card vs. Forex Card with the help of the table below-
|Parameter||Forex Card||Credit Card|
|Exchange Rate||Fixed at the time of loading money||Variable at the time of transaction|
|Mark-up Fee||Low or Nil||High (up to 4% of transaction value plus GST)|
|TCS from October 1st, 2023||Nil (up to Rs. 7 Lacs) 20% (Above Rs. 7 Lacs)||Nil|
|Issuance||Convenient to buy. Most Banks charge zero issuance fees.||Banks check Credit ratings before issuance. Often issued against security. Annual fees are also payable, depending on the variant you qualify for.|
|Travel Insurance||No||Many Banks/financial institutions offer complimentary travel insurance|
|Fraudulent Transaction Reversal||To prevent further misuse, the card can be readily blocked. However, seeking a chargeback for stolen funds is complicated.||Chargeback of stolen money is much easier.|
|Cash Withdrawal Charges/ Cash Advance Fees||A nominal fixed charge is levied.||High (normally 2.5 to 3% of the transaction value plus GST)|
How can we reduce paying increased TCS from October?
- Make plans for your foreign travel for up to Rs. 7 lakh in a fiscal year.
- Choose the purpose of your foreign remittance wisely. A higher TCS rate (20%) will not apply to education expenses incurred abroad or for medical reasons.
- Adjust the amount deducted as TCS against your tax liability when submitting an ITR. Or you can claim it as a refund if you have no tax liability. You can also use credit to calculate your advance taxes.
- Based on your needs and preferences, compare and select the best alternative for carrying and paying foreign currency overseas, such as forex cards, credit cards, debit cards, or cash.
Now that we have discussed the revised TCS from October 1st, 2023, your trip to a foreign country and spending there will no longer be a lavish plan. You must be very cautious in making budgetary allocations before planning overseas trips to ensure your expenses don’t breach the defined limit.
We have also dug deep into Credit Card vs. Forex Card to weigh their pros and cons to help you save money on your international trip. However, the best option for you will depend on your travel frequency and personal preferences.
Therefore, we suggest you research and analyze before making a final decision. We hope this article has helped you understand everything about the revised TCS from October 1st to help you travel stress-free.
What is the difference between a Forex card and a debit card?
A Forex card is a pre-paid card that allows you to load foreign currency at a fixed exchange rate and use it like a debit card when traveling abroad. A debit card is linked to your bank account, which allows you to withdraw the available balance from ATMs.
However, you must pay a variable exchange rate and transaction fee when using a debit card abroad. Increased rates of TCS from October 1st, 2023, apply uniformly to both.
How can I transfer the unused balance in my Forex card to my bank account?
Using the encashment feature, you can transfer the unused balance in your Forex card to your bank account. You can contact your Bank or issuing company and request them to transfer the available balance to your bank account.
How can I compare different forex cards and credit cards before choosing one?
You can compare different features of credit cards vs. Forex cards based on their exchange rate, transaction fee, TCS rate, and benefits each option offers. You can also check their online reviews and ratings. You can also ask for recommendations from your friends or family who have used them.