Introduction to 20% TCS starting on October 1, 2023: Why using a forex card instead of a credit card might save you money while traveling abroad
While traveling overseas may be an exciting experience, handling your money while away from home can be difficult. It’s critical to choose wisely when using credit cards or forex cards for foreign expenses in light of the most recent changes to tax legislation. If you load more than Rs 7 lakh on a forex card in a financial year, starting on October 1, 2023, you would be subject to a higher Tax Collected at Source (TCS) of 20%, instead of the previous rate of 5%. International credit cards are still not subject to TCS in the meantime. Does this imply that using credit cards is always going to be the best choice while traveling abroad? To discover, let’s examine the finer points.
Comparing a Credit Card with a Forex Card: What are the Differences
It’s important to understand the fundamental distinctions between a credit card and a forex card, including their costs, in order to choose the best option for your foreign travels.
The foreign exchange conversion rate is fixed as soon as you buy a forex card and put money onto it. In contrast, the relevant foreign currency rate is paid at the time of each purchase when using a credit card. The CEO and co-founder of EaseMyTrip, Nishant Pitti, says, “When you load money on a forex card, the exchange rates are locked in instantaneously. It could offer a feeling of monetary stability in the face of rate changes.” Credit cards, on the other hand, may have better conversion rates and allow you to accrue reward points for later usage, but they may also charge you more for overseas transactions. The total cost of FX transactions may increase as a result of these extra fees.
Forex Cards with No Markup Fee: A Possible Way to Save Money
Travelers have been using forex cards more often in recent years, mostly because of one big benefit: there are no markup costs. You usually pay a markup fee—a cost that is added to the transaction value—when you use your credit card or forex card overseas. When using a credit card outside of India, there is usually a 2-4% cross-currency markup fee in addition to GST on the purchase. Forex cards, on the other hand, do not levy this fee, which makes them a desirable choice for budget-conscious tourists.
It’s crucial to remember that currency cards must be used within the designated currency jurisdiction. The usage of a forex card outside of the specified currency jurisdiction may result in a cross-currency charge of up to 3.5% of the total transaction amount. Remember that different currency card providers may impose different fees.
Choose multi-currency forex cards, which let you load many currencies onto a single card, to avoid this cross-currency tax. This can be a handy method to keep track of your spending when traveling, but make sure you check with your card issuer to see whether your multi-currency forex card has this function enabled.
Credit Card Fees With No Forex Markup
A few banks now provide credit cards with no currency markup fees, while forex cards have long been a popular option for avoiding markup costs. The IDFC First WOW credit card is a noteworthy instance, as it offers no annual cost, no membership fee, and no forex-markup on foreign purchases. The catch is that this card is only available to those who have a fixed deposit with the bank, and the credit limit is limited to a minimum of 100% of the deposit.
There is no one-size-fits-all solution when it comes to choosing between using a credit card or a forex card for overseas travel. Every choice has certain benefits and drawbacks. Credit cards might provide better exchange rates and reward points, but forex cards can save you money by eliminating markup costs. Before making your decision, it’s critical to carefully analyze these aspects as the tax environment changes. The best option for you will ultimately rely on your financial objectives, spending patterns, and travel preferences. Remembering the most current adjustments to tax laws and foreign currency policies, make sure you investigate and contrast various card choices. You may then travel the world and make an informed decision that optimizes your financial gains.
This blog is contributed by Sanal Pillai and edited by Imtiaz Ullah