If you carry a credit card from India while travelling abroad and use it at a merchant overseas, you should remember that you will be charged a conversion mark-up fee.
This mark fee typically varies between 1.5 to 3.5 percent of the converted Indian currency. Over and above of this conversion mark up fee, you will also be charged GST at 18 percent interest.
Conversion mark-up: Take the following steps
1. First you convert the foreign currency into Indian currency at the exchange rate. This is done by using the card network’s exchange rate (e.g., Visa or Mastercard).
2. On the converted amount, you can calculate the currency mark-up. Banks typically charge a mark-up fee, which ranges between 1.5 to 3.5 per cent of the converted Indian rupee amount.
3. After adding a currency mark-up, one has to calculate goods and services tax (GST) of 18 percent.
4. Following this, one should add a foreign transaction fee (if applicable).
Let us understand this with the help of an illustration:
1. Suppose you make a transaction of $100 and each dollar amounts to ₹83.50 on the date of transaction.
2. First you need to convert the total transaction amount into Indian currency. 100 dollars equal ₹8,350.
3. Now you can calculate the mark-up fee i.e., 3 percent of 8,350 = ₹250.50.
4. Add 18 percent GST on this fee i.e., ₹250.50. It now becomes ₹45.09
5. Total charges therefore become ₹250.50 + 45.09 = ₹295.59.
So, the total credit card due will turn out to be ₹8,350 + 295.59 = ₹8,645.59
Some tips to minimise currency conversion mark-up fees
1. Look for the credit cards which have lower mark-up fees such as SBI Elite.
2. You can also opt for no mark-up cards: There are some credit cards which have no mark-up fees.
3. It is always recommended to pay in the local currency when you are travelling overseas instead of paying in the Indian currency.
4. Use forex cards: Prepaid forex cards typically offer better exchange rates and do not impose any additional mark-up fees.