Using a debit card or credit card abroad? Follow your basic spending need
The first thing to keep in mind is that using a debit card means spending the money in your account. Once you swipe a debit card at a cafe or shopping mall, the payment will reduce the balance in your bank account immediately . If you want to keep a tab on the spending, a debit card can be a good option.
Credit cards, on the other hand, are handy if you face a shortage of funds while travelling abroad. Further, you get an interest-free utilisation period of 45-50 days to clear the dues, says Subbiaa Olimuthu (Vice President-Products), IppoPay.
However, avoid the temptation of overspending on your credit cards on unplanned expenses, says Tejas Arora, Executive Director, Deloitte Haskins & Sells LLP.
Apart from spending for your needs, factor in aspects that can impact the cost of the trip as these can crop up under unexpected circumstances.
Debit card vs credit card during an international trip: Mark-up fee, forex charges and more
Any payment made abroad using a debit card or credit card will attract a markup fee — a price above the transaction’s value. The dynamic currency mark-up fee is usually 1% of the transaction value on debit as well as credit cards. There are zero-markup debit and credit cards available. “However, it is imperative to understand that the zero-markups apply to rates provided by payment networks or partner banks and not to interbank rates, which are live and real-time rates. Network rates often carry up to a 1% premium compared to interbank rates,” says Nitin, Motwani, Founder & CTO, BookMyForex.com.
When a debit and credit card is used outside India, the payment will mostly be in a foreign currency. On the card, the value of the transaction gets converted from the rupee to the foreign currency concerned. This attracts a forex conversion fee — usually up to 3.5% — for each transaction.
Should you use a debit card or credit card to withdraw money from ATMs abroad?
Using a credit card to withdraw foreign currency from an ATM abroad will lead to a charge of foreign currency transaction fee, withdrawal fee , or cash advance fee, along with the interest charges. Such transactions will cost you a cash advance fee of up to 3.5% of the amount withdrawn, along with interest charges of up to 42% per annum (up to 3.5% per month) on revolving credit, and a the foreign currency transaction fee of up to 3.5% of the transaction value, depending on the card.
On the other hand, using a debit card to withdraw money from an ATM during an international trip will incur a flat withdrawal fee (typically Rs 125 to 150 per transaction). This fixed amount is usually much lower than the cash withdrawal fee charged on credit cards.
So, if you need urgent cash and have the money in your bank account, use a debit card and avoid credit card for withdrawals from ATMs.
Debit card vs credit card: What to use while travelling abroad
| Particulars | Debit cards | Credit cards |
| Dynamic currency fees (mark-up fees) | 1% | 1% |
| Interest | Not applicable | 24% to 48% on unpaid dues |
| Foreign exchange transaction charge | 3.5% | 3.5% |
| ATM withdrawal fee | Transaction based (typically Rs 125-150 per transaction) | Percentage based (3.5% to 4% of withdrawal amount) |
| Interest on ATM withdrawals | Not applicable | Leviable |
| Applicability of TCS | Applicable at 20% (subject to threshold) | Not applicable for payments towards meeting expenses while on a visit outside India |
Debit card vs credit card: Be careful of fraudsters during your foreign trips
Another thing to keep in mind is that when you swipe a credit card abroad, your bank balance is not exposed. So the loss in case of a scam or fraud will be restricted to the maximum limit on the credit card. In such cases, you can block the credit card and fall back on your debit card.
In a debit card, however, scamsters can wipe your bank account clean if you use the card at the wrong place. Scamsters may even clone your debit card and use your bank balance according to their wish.
Arora says the loss is immediate and greater in case of loss, misuse or theft of debit cards as these are directly linked to the bank account.
If you need to block your debit card in an emergency, you will not be able to withdraw money or use the amount in the savings account.
So, if you are going to a quaint cafe or a hyperlocal store in a foreign country, it is better to swipe your credit card than debit card.
TCS rule on debit card and credit cards
Starting October 1, 2023, individuals have to pay a TCS at 20% if they remit more than Rs 7 lakh in a financial year, except in certain cases. There is no TCS on debit card spending of up to Rs 7 lakh in a financial year. International credit cards have been kept out of the Liberalised Remittance Scheme (LRS), so no TCS will be levied on credit cards. Do remember that the threshold of Rs 7 lakh applies qua remitter.
Do remember that TCS is not an additional income tax. You can adjust the amount deducted as TCS against your tax liability while filing the income tax return (ITR).
While spending money abroad, do a little math and check how much additional charges you will need to pay on both debit and credit cards. Then decide which one to use.
Carry both cards on your international trip and use them based on safety and financial requirements. The cards can also complement each other in case of breach of transaction limits or other issues, adds Arora.
