How to avoid hidden charges on overseas transactions

Are you aware of these hidden international transaction charges? Read this piece to know in detail

How to avoid hidden charges on overseas transactions

We often use our credit/debit cards for shopping while on a vacation abroad or while buying gadgets from an international website. You must have noticed that the amount deducted from your card is not just the purchase price; it also includes some additional charges.

Is there anything one can do about it?

Well, there’s a way. If you are aware of the charges levied on international transactions by various banks, and when and why they are charged, you’ll know how to minimise them.

Read on to know about these hidden international transaction charges.

Traditionally, there are seven types of charges that are levied on an international transaction. Instead of using technical jargon, let’s put it in simple words. The charges are:

  • Foreign currency conversion fee: charge for converting currency by the payment facilitator such as Visa or Mastercard
  • Transaction charges: The transaction charge levied by the bank
  • Cash withdrawal charges: Obviously, a charge on cash withdrawal
  • Goods and Service Tax (GST)
  • The annual maintenance fee
  • Cost for crossing card limit
  • Late payment fee

1. Foreign currency conversion fee

As the name suggests, this is a charge for converting your home currency (rupee) to the foreign currency (say, USD). The latter will depend on the place where you are shopping from (merchant’s place of operation).

While paying in rupees, the currency conversion rate is generally higher as compared to when paying in USD.

Along with the conversion charges, the payment facilitator (usually Visa or Mastercard) also charges a fee for conversion, which is around 1-2% of the conversion amount.

2. Transaction charge

In addition to the foreign currency conversion fee, banks also charge a flat 2.5-3.5% of the transaction value for processing. In other words, it is the charge for giving you the service of cashless shopping overseas. It is charged regardless of the currency and exchange rate. 

Therefore, you cannot skip this charge. But since such charges are disclosed in the terms and conditions of the bank that issued your card, you can choose a bank that charges less by way of transaction fee than other banks. 

3. Cash withdrawal fee

Withdrawing cash can be very expensive while touring in a foreign country. Banks charge nearly 1-4% of the transaction amount as a cash withdrawal fee, which is huge! It can either be a percentage of the transaction value or a flat amount per transaction.

So if you withdraw cash, you are not only levied the currency conversion charge but cash withdrawal charges as well, which can together amount to a good 7-8%.

Therefore, withdrawing cash outside your home country is a strict no-no.

4. Goods and Service Tax

The government charges 18% as GST on the banking services availed by you, which is calculated on the fees charged by the banks. This is, therefore, an additional tax you bear over and above the aforementioned charges.

5. Annual maintenance fee 

Almost all cards come with an annual maintenance fee. It may be that in some banks it is waived for a year or so but after that even if you are not using it, the annual maintenance fee has to be paid. The applicable fee could range between Rs 1500-3000 in a year. 

6. Penalty for exceeding card limit 

If you cross your credit card limit even by one rupee, your bank will charge you a minimum overlimit fee of Rs 500 or 2.5% of the overlimit amount, whichever is higher. 

7. Late payment fee 

If you fail to make timely payment of your credit card dues, it may cost you dearly. If you fail to pay the minimum amount due and delay your payment by more than 90 days, a late fee will be charged by the bank. For amounts between Rs 500 and Rs 20,000 this fee will be in the range of Rs 100-600, while for amounts over Rs 20,000 it will be in the range of Rs 700-800. 

Debit card charges

Provider

Foreign transaction fee

Cash withdrawal fee

SBI 

Varies from country to country

Varies from country to country

Axis Bank 

3.50%+ ST

2.50-3.50% + taxes

HDFC Bank

3.50%+ ST

Rs 125 + taxes

ICICI 

3.5%+ST

Rs 125 + taxes

HSBC 

3.50%+ ST

Rs 120 + taxes

Citibank 

2.5-3.5% + ST

2.5-3.50% + taxes

Standard Chartered 

Rs 140+0.07% to Rs 770+0.014%

Rs 140 + taxes

Kotak Mahindra 

3.50% + ST

Rs 150

Credit card charges

Provider

Foreign transaction fee

Cash advance fee

SBI 

3.50%

3% or Rs 300, whichever Is higher

Axis Bank 

3.50%

2.50% of the total amount

HDFC Bank

3.50%

2.5% (min Rs 300)

ICICI 

3.5%

2.5% (min Rs 300)

HSBC 

3.50%

2.5% (min Rs 300)

Citibank 

3.50%

2.5% (min USD 7.5)

Standard Chartered 

3.50%

3% (min Rs 300)

Kotak Mahindra 

3.50%

Rs 300

American Express

2.99%

2.99%of the total amount

Even if the tax adds to your overall cost, there’s actually nothing you can do about it.

After looking at all the costs that add to your online purchases, the obvious conclusion is to pay in the currency of the foreign country where the merchant belongs, whether it’s online shopping or shopping while touring. Secondly, choose a bank that offers the lowest transaction cost. Thirdly, never withdraw cash in a foreign country; instead, carry adequate cash while travelling abroad.

Following these tips should help you become a smart buyer while doing international transactions. Shop with confidence!

Karan Batra is a Chartered Accountant specialising in Income Tax and GST. He is the founder and CEO of charteredclub.com which is one of India's largest content platforms for Tax related resources. He is also a visiting faculty at the Institute of Chartered Accountants of India and has also authored 2 books on Capital Gains Tax and Presumptive Tax. 

His articles and opinions are regularly published in print media like The Financial Express, The Hindu Business Line etc and also in TV Media like NDTV."

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or insurance or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.

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