TCS on credit card and forex card under RBI LRS lacks parity: What experts suggest Budget 2026 do?

For a lot of Indians travelling abroad, the biggest surprise is how card spending is taxed. Picture this, you swipe your card while overseas, paying for a hotel, local transport or shopping and think nothing of it. But the tax implications can change based on how you spend money overseas.

Two Indian travellers who spend the same amount in another country can end up with totally different tax treatments. This isn’t about what they bought; it's because one used a forex card and the other used a credit card. As Budget 2026 approaches, this discrepancy in how foreign spending is taxed is drawing renewed scrutiny.

TCS under the Liberalised Remittance Scheme (LRS) applies to all foreign transfers during a given financial year. Since October 2023, LRS reporting and TCS have been aligned for most forex products. However, international credit card spending continues to remain outside this framework, creating a clear regulatory imbalance. On the flip side, prepaid forex cards and currency purchases are fully subject to LRS reporting and TCS compliance.


Some credit card platforms even market themselves by showing that no TCS is charged on credit cards for education and medical expenses.

This has pushed consumers to favour credit cards for overseas spending, which has raised operational and compliance challenges. Keep reading to find out what experts expect from Budget 2026, why TCS applies to forex and debit cards but not credit cards, and what this means for consumers.

Also read: Income Tax Budget 2026 Expectations Live

Challenges faced by consumers when using forex cards for international spending over international credit cards

People using forex cards, debit cards, or direct money transfers for international expenses face several practical challenges compared to those using international credit cards, mainly because of how TCS is applied.
“The most immediate issue is the upfront TCS burden, which requires users to pay an additional amount at the time of remittance or card loading, often 20% beyond the Rs 10 lakh annual threshold, creating liquidity stress even though this amount is only an advance tax and may be refundable later,” says Pavan Kavad, Managing Director of Prithvi Exchange.

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In many cases, many people have to arrange extra funds or borrow just to meet the TCS requirement.

“Users also face transaction friction and compliance checks, as authorised dealers are required to verify PAN, monitor cumulative LRS limits across transactions, and educate customers on usage restrictions, which can slow down transactions or limit flexibility while travelling,” he added.

This disparity or asymmetry not only puts those users who rely on forex or debit cards at a disadvantage but also distorts consumer choice, nudging travellers toward credit cards, mainly to sidestep regulatory hassles instead of considering costs or suitability.

Why do international credit card spends remain outside the LRS framework?

The applicability of TCS depends largely on how overseas transactions are routed and monitored. Payment modes that pass through regulated channels are easier to track and tax for authorities.

“TCS applies to foreign remittances and purchases made through debit cards, prepaid forex cards, and direct money transfers because these transactions are routed through authorised dealers who are already integrated into the LRS reporting framework and can technically track remittance limits, collect PAN details, and deduct TCS at the point of transaction,” says Kavad.

Since October 2023, regulators have explicitly linked LRS reporting with TCS for most forex products, placing clear compliance obligations on banks and authorised dealers handling outward remittances or foreign exchange sales. In contrast, international credit card spends have remained outside the LRS framework largely owing to operational and technical challenges cited by card issuers, such as real-time aggregation of overseas spends across merchants and geographies, delayed settlement cycles, and the fact that credit cards involve post-paid credit rather than upfront fund transfers, he continues.

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As a result, credit card networks have not been mandated to apply LRS checks or collect TCS, even though the underlying economic activity, overseas spending by resident individuals, is identical.

This asymmetry has created a regulatory gap, shifting consumer preference toward credit cards to avoid upfront TCS, increasing compliance burdens for regulated forex players, and raising concerns around uneven enforcement and potential misuse and loss of revenue to the exchequer through advance tax collections and compliance issues, which is why I wants to appeal that bringing international credit card spending under the LRS ambit is necessary for ensuring transparency and creating a level playing field and enforcing compliance with RBI guidelines, Kavad adds.

“In 2023, the Ministry of Finance amended rules under the Foreign Exchange Management Act (FEMA) to bring international credit card spending within the LRS ambit and make it subject to TCS. However, the implementation of these provisions for credit cards was subsequently kept on hold, whereas the revised TCS provisions continued to apply to forex cards and money transfers, says Gagan Malhotra, Chief Operating Officer, BookMyForex.com.

What are experts expecting from Budget 2026?

Experts believe the upcoming budget should address the long-standing disparity between forex-based payments and international credit card spending under the LRS framework.

“In the context of overseas spending under the Liberalised Remittance Scheme (LRS), the Union Budget 2026 is expected to provide greater clarity on the treatment of international credit card transactions. While the Government, through the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023, had sought to remove the differential treatment between international credit cards and other modes of foreign exchange drawal, the implementation was consciously deferred due to significant operational and system-level challenges faced by banks and card networks,” says CA (Dr.) Suresh Surana.

“Stakeholders will be keenly watching whether Budget 2026 lays down a clear roadmap or timeline for eventual implementation,” he added.

Another view is that Budget 2026 may bring clarity and uniformity to cross-border payments by making international credit cards subject to TCS, similar to forex cards.

“Budget 2026 may bring legislative clarity and uniformity in the treatment of cross-border payments by bringing international credit card spends within the LRS limits, thereby subjecting such spending to applicable TCS. As TCS on remittances under LRS have been in place for a while now, banks also may be better prepared for LRS reporting and TCS compliance at their end,” says S. Vasudevan, Executive Partner, Lakshmikumaran & Sridharan attorneys.

What are the key changes related to TCS that were announced in the Union Budget 2025?

Union Budget 2025 had already made several changes to the Tax Collected at Source (TCS), particularly impacting foreign remittances under the RBI’s LRS.

“Union Budget 2025 introduced several significant changes to the Tax Collected at Source regime under Section 206C(1G) of the Income Tax Act,1961 (IT Act). The finance minister raised the threshold for collecting TCS on outward remittances from Rs. 7 lakh to Rs. 10 lakh per financial year, providing relief to taxpayers by ensuring that only remittances exceeding this higher threshold attract TCS,” says Surana.

This change, effective from 1 April 2025, applies across all remittances under the LRS, including travel, medical treatment, education (other than loan-funded from the specified financial institution u/s 80E of the IT Act) and other remittances and is designed to ease immediate cash outflow, he continues.

Further, full exemption from TCS was introduced on overseas education remittances financed through an education loan from specified financial institutions under Section 80E of the IT Act, removing the earlier 0.5% levy on such remittances, he adds.

How does TCS on foreign remittances work?

Tax Collected at Source (TCS) is levied on outward remittances made under LRS once the prescribed threshold is crossed.

Malhotra explains that, at present, no TCS is applicable on aggregate foreign remittances up to Rs 10 lakh in a financial year. When the total remittance exceeds this limit, TCS is collected at the applicable rate depending on the purpose of remittance. The slab is mentioned below.

TCS Applicability under the Liberalised Remittance Scheme (LRS)

Purpose of Foreign Remittance	TCS Rate	Threshold Applicability
All foreign remittances (travel, investments, gifts, maintenance, etc.)	20%	Applicable on amount exceeding Rs 10 lakh in a financial year
Education (without education loan)	5%	Applicable on amount exceeding Rs 10 lakh in a financial year
Medical treatment (abroad)	5%	Applicable on amount exceeding Rs 10 lakh in a financial year
Aggregate foreign remittances up to threshold	Nil	Up to Rs 10 lakh (Rs 7 lakh for education loan cases)

TCS is collected by the authorised dealer or forex service provider at the time of the transaction and is deposited with the Income Tax Department. The amount collected is reflected in the customer’s Form 26AS and can be claimed as a credit or adjusted against the final tax liability while filing income tax returns. TCS is not an additional tax, but an advance tax credit mechanism for tracking overseas remittances, he adds.