20% TCS from October 1, 2023: How a forex card could save you more than a credit card during international trips (2024)

From October 1, 2023, forex cards will attract tax collected at source (TCS) at 20% if the user loads over Rs 7 lakh on the card in a financial year. At present, TCS on forex cards is at 5% if you add more than Rs 7 lakh on the card. There is no TCS on international credit cards. Does it mean that credit cards will be a better option than forex cards while travelling abroad? Probably not always. Read carefully to know more.

To find out if credit card or forex card is better for international travel , we need to understand the basic differences between these two and their charges.

Forex card vs credit card: What are the differences?

When you buy a forex card, the foreign exchange conversion rate is locked as soon as you load money into it. In the case of a credit card, the applicable foreign exchange rate is paid at the time of a transaction. "In a forex card, the exchange rates are locked in instantly when you load money. It may provide a sense of financial security against rate fluctuation," says Nishant Pitti, CEO and Co-Founder, EaseMyTrip. "On the other hand, credit cards may offer better exchange rates and accumulate reward points for future use, but can trigger international transaction fees." This can push up the overall cost of forex transactions.

Also Read: New 20% TCS rule from October 1, 2023: Know TCS rates on international trips, forex payments, debit, credit card, education, foreign investments

Zero markup fee on forex cards could save more while travelling

Forex cards have recently become popular among travellers, all thanks to a zero-markup fee. While you use your credit card or forex card abroad, you are usually charged a price over and above the actual transaction value, known as the markup fee. Swiping a credit card outside India costs a cross-currency markup fee of 2-4% of the transactions plus GST, while forex cards do not incur this charge.

However, keep in mind that the forex card has to be used within the currency jurisdiction for which it has been loaded. If a forex card is swiped outside the currency jurisdiction, a cross-currency fee of up to 3.5% of the transaction value is charged. However, the charges may vary from one forex card to another.

If you want to avoid this cross-currency fee, opt for multiple-currency forex cards. However, do check with the issuer if this functionality is enabled in your multi-currency forex card.

A couple of banks now offer zero-forex markup fees on credit cards as well. One such credit card is the IDFC First WOW. It has no joining fee, annual fee or forex-markup fee on international spending. However, you need to have a fixed deposit with the bank and you get a credit limit of at least 100% of the deposit.

Large and reputable banks often offer credit cards with high markup fees, says Sudarshan Motwani, Founder & CEO, BookMyForex.com. "Many customers do choose such credit cards despite the very high cost and in many situations, customers simply use the credit cards they already have. This is convenient for sure, but at a substantial cost."

Credit card vs forex card: All you need to know

Nature of spends	Credit Card	Forex Cards
Levy of TCS	Not applicable	20% TCS on spends exceeding Rs 7 lakh from October 1, 2023
Forex mark-up	2-4% plus GST	Usually, nil
Exchange rate	Dynamic – determined at point of sale	Can be determined upfront (at the time of load)
Convenience	Banks check credit score before issuing a credit card	Easy to get; past credit history is not required
ATM Withdrawal charges	Come with high charges and interest rates	A fixed rate is usually charged. For example, Rs 150-350 per withdrawal
Annual fee	Nil- Rs 50,000 plus GST	Usually comes with nominal one-time issuance fee; some companies do not even charge an issuance fee
Travel insurance	Complementary in most cases	No
Rewards	May be as high at 7-8%	Usually, up to 1%
Key point to remember	No hassle of encashment	Encash the unused amount on time or it will be stuck. You have go to the bank to get unutilised money back.

Source: ET Online and Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co.

Ideally, inform the bank before the journey that you are going to use your credit card during the international trip; otherwise, it could lead to complications later, said experts.

However, if you have a credit card with zero markup fee, the overall cost would be lower . "Credit cards with zero or low mark-up fees can be advantageous for travellers, as they offer perks like reward points, cashback, and lounge access," adds Pitti.

Credit card vs forex card: Which one should you use to withdraw cash from ATMs while travelling abroad?

If you use a credit card to withdraw foreign currency from an ATM abroad, you will have to pay the foreign currency transaction fee, withdrawal fee, or cash advance fee, along with the interest charges. Using a credit card to withdraw money from ATM in foreign locations will cost you a cash advance fee of up to 3.5% of the amount withdrawn, along with interest charges of up to 42% per annum (up to 3.5% per month) on revolving credit, and the foreign currency transaction fee of up to 3.5% of the transaction value, depending on the card.

But if the same transaction is done using a forex card, it will incur a flat cash withdrawal fee, which is generally a fixed amount per transaction — and much lower than the cash withdrawal fee charged on credit cards.

For instance, Niyo Global Zero Forex Markup debit card with Equitas Small Finance Bank charges a flat fee of Rs 110 plus GST for every ATM withdrawal. BookMy Forex - Yes Bank Multi-Currency Forex Card charges a fixed amount for each ATM withdrawal, depending on the currency. Do note that for the Niyo Global debit card, you have to open a zero-balance savings bank account with Equitas. "An additional forex conversion charge will be levied if the currency withdrawn from the ARM is different from that on the forex card," says Vinay Bagri, Founder & CEO of Niyo.

Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co, says ATM withdrawals on credit cards usually come with high charges and interest levy. “ATM withdrawals on debit cards are also subject to high forex conversion charges. Forex cards, on the other hand, have a predetermined fee for ATM withdrawals and are usually the best option."

Forex card are available easily, but don’t keep money lying after travelling
Most forex cards are easily available online. Issuers usually don't check credit history while assigning these cards, says Singhania. You must be an Indian citizen of 18 years or more with a valid Aadhaar, PAN card, and a passport. You can apply for these cards online. Most companies, including, Niyo, offer virtual forex cards. So, prepaid forex cards are easy to buy. But remember that if you do not encash the amount before expiry, the balance get blocked for the time being. Then, you have to approach the bank and get the unutilised money back by submitting a form and copy of you passport.

For credit cards, banks will check your credit history before issuing a card. It is not mandatory to open a savings bank account in a bank to get a credit card, and there is no hassle of encashing a balance. However, you have to pay your credit card bill on time, otherwise you will have to pay a hefty interest.

Further, forex cards usually do not offer rewards or travel insurance. Most international credit cards come with rewards and complementary insurance.

There is no annual fee or joining fee in the case of forex cards. However, you have to pay a nominal one-time issuance fee. While credit cards usually have a joining fee and an annual fee, the issuing bank usually levies these only if the user’s spending is below a particular amount in a year.

Lastly, you don't have to pay any TCS on a forex card if you spend within the threshold of Rs 7 lakh per year. For spends within Rs 7 lakh, a forex card with zero or low markup is a better option than a credit card while travelling abroad, says Singhania.

Credit card vs forex card: Which one to use during international travel from October 1, 2023?

If you are travelling in a group and your expenses will go beyond Rs 7 lakh, use two forex cards with a Rs 7 lakh limit each, instead of debit cards. As TCS is PAN-card specific, each individual enjoys a separate Rs 7 lakh exemption limit even if travelling in a group. So there won’t be a levy of TCS up to a cumulative load of Rs 14 lakh.

Zero-markup credit cards could come in handy for many but do read the terms and conditions carefully before using them.

"High-fee credit cards may compensate for their costs with additional benefits such as enhanced reward points, increased lounge access, and extensive insurance coverage, making the decision contingent on individual preferences and usage patterns. Ultimately, the choice between credit cards and forex cards hinges on personal needs and circ*mstances," says Pitti.

It's important to note that these are general comparisons; the terms and conditions of each card can vary depending on the bank and the card.