The government on Friday walked back its plan to levy a 20% tax on overseas credit card spending from July 1, in the face of a furore among taxpayers and businesses, and decided to exempt any payments by an individual using their international debit or credit cards up to ₹7 lakh per financial year from the levy.

This was being done to remove “any procedural ambiguity” as “concerns have been raised about the applicability of Tax Collection at Source (TCS) to small transactions under the Liberalised Remittance Scheme (LRS) from July 1,” the Finance Ministry said in a statement.

Earlier, the RBI introduced a provision to bring overseas credit card spends under the LRS, which permits forex remittances of up to $2.5 lakh a year. The government had separately notified that such overseas spending would attract a 20% TCS, with a provision to adjust such levies against advance tax payments or seek a refund at the time of filing annual tax returns.

“Existing beneficial TCS treatment for education and health... will also continue,” the ministry said.