What are Foreign Transaction Fees? Working & How to Calculate?
TL;DR - Summary
- What is a foreign transaction fee? - A foreign transaction fee is an additional charge that applies when you make a card purchase in a foreign currency, such as buying from an overseas merchant or using an international payment network. Depending on your issuer and the nature of your card, other costs such as issuer markup and a few other related charges may also be added.
- How much do foreign transaction fees cost? - It depends on both the card and the issuer. The amount is not fixed. In India, the forex markup on credit and debit cards can be as high as 3.5% and GST is also levied.
- Do the charges apply to foreign purchases only? - Foreign transaction fees only apply when you pay to an overseas vendor or when you make card payments in a foreign currency.
- What is the most common mistake people make? - A common mistake travellers make is deciding to pay in INR instead of the local currency. This is where the transaction is routed through Dynamic Currency Conversion (DCC), which typically offers a less favorable exchange rate than the local currency.
What is a Foreign Transaction Fee?
A foreign transaction fee is charged when you make a card payment in a foreign currency to an overseas merchant or through an international payment network. The fee structure will depend on the individual card issuer. The total cost of an international card transaction can include currency conversion costs, a forex markup charged by the issuer, network charges, any applicable taxes, and in some cases, Dynamic Currency Conversion (DCC) fees.
You may incur foreign transaction fees when using Indian credit cards outside India. Charges may also apply to software subscriptions, cloud services, streaming platforms and other products or services billed by an overseas entity.
Forex markups on Indian credit cards range from 1% to 3.5%, depending on the issuer and variant of the card. The actual foreign transaction fee is often variable.
⚠️ COMMON MISCONCEPTION
A lot of people think the currency exchange rate already takes into account the foreign transaction fee. What really sets the value of one currency against another is the exchange rate and then the foreign transaction fee is a separate charge added by the card issuer.
How Do Foreign Transaction Fees Work?
How a Foreign Transaction Fee Builds Up
Hover any step to expand
Merchant charges in local currency
Hover ›Card network converts to your currency
Hover ›Card issuer adds its markup
Hover ›Taxes stack on the fee portion
Hover ›Extra charges may still apply
Hover ›A foreign transaction fee works by passing your payment through several parties, each of which can add a charge, before it lands on your statement. The transaction may look simple at checkout, but the settlement process involves the merchant, the card network, and your card issuer, with taxes layered on top. Here is how each step works:
- Step 1: The merchant trades in the local currency: The merchant completes the payment with the currency they normally operate with. So if you buy something in Singapore, the transaction will be processed in Singapore dollars first.
- Step 2: The card network does its currency conversion: The card network (Visa, Mastercard, Amex, or similar) converts the transaction amount into the cardholder’s billing currency using the applicable exchange rate at the time of settlement. The exchange rate depends on the network’s approach, plus the timing window when settlement actually happens.
- Step 3: Your card issuer adds its applicable charges: After the payment is received at the bank, the issuer can include a foreign currency markup or an international transaction fee. In most common cases, this ends up somewhere around 0% to 3.5% of the converted amount, depending on the card agreement.
- Step 4: Taxes get layered on top of the fee portion: Relevant taxes such as GST are generally applied on top of the issuer’s markup or that fee component. Once the transaction is completed, the final amount will appear on the card statement.
- Step 5: Additional charges, if any, will be applied: Extra charges may apply on top of the foreign transaction fee, depending on the type of transaction and your card and the issuer. These are also added to your card statement.
Some merchants have Dynamic Currency Conversion (DCC) which allows you to pay the bill in INR instead of local currency. While paying INR in a foreign country may be convenient, DCC usually leads to a poorer exchange rate (plus potentially some extra merchant markups). Thus, sometimes paying in local currency is relatively cheaper.
⚠️ COMMON MISCONCEPTION
Paying in INR at a foreign POS terminal may not always be the cheaper option. Dynamic Currency Conversion (DCC) often applies a less favourable exchange rate than your card network or bank, increasing the total cost.
What Types of Transactions Have Foreign Transaction Fees?
Any transaction that is processed in a foreign currency or routed through an overseas payment network can attract a foreign transaction fee. They are not limited to international travel, and can show up on everyday domestic payments like online purchases, card transactions, or subscriptions. Transactions that could be subject to these fees include:
- Purchasing while traveling outside India: Purchases made while travelling abroad such as shopping, meals, hotel stays or even tickets for entertainment, using your card can incur fees. In many cases, the payment ends up being handled in a foreign currency, so the foreign transaction fee can get added.
- Ordering from a foreign merchant online: Even if you place the order from India, you may still incur a foreign transaction fee if the merchant charges you in a foreign currency or processes the payment through an overseas payment network.
- Withdrawing cash from ATMs abroad: When you take cash out of an ATM in a foreign country, you will be imposed with a handful of charges including a foreign transaction fee, a fee from the ATM operator and a currency conversion fee.
- Some POS payments made in India: Duty-free shopping and certain checkout flows that use overseas payment rails can sometimes incur foreign transaction fees when the settlement path goes abroad.
- Global subscriptions and software: You might be charged recurring foreign transaction fees for cloud services, SaaS, AI tools, streaming renewals and app purchases if the provider bills through foreign entities.
- Booking travel services from overseas providers: You may be charged foreign transaction fees for booking airline tickets, hotel reservations and other travel expenses from overseas providers, even if you are paying online to an overseas merchant while you are in India.
- Digital wallet payments: You might be charged a fee for topping up your wallet or paying by debit/credit card in a foreign currency. Even if the underlying transaction is in foreign currency or the merchant side is done through an overseas party, the foreign transaction fee may still apply.
💡 QUICK INSIGHT
Even if the transaction does not happen outside India, you can be levied a foreign transaction fee. If the payment is processed in a foreign currency or through an overseas merchant or payment network, your card issuer may still classify it as a foreign transaction.
Example of Foreign Transaction Fees
For example, a customer is travelling in Europe and uses an Indian credit card to buy something for €300.
- Exchange rate: ₹92 per €1
- Converted transaction value: ₹27,600
- Foreign transaction fee (forex markup at 2.8%): ₹773
- GST on foreign transaction fee (18%): ₹139
- Total billed amount: ₹28,512
Based on the exchange rate alone, the purchase costs ₹27,600. However, the final amount charged is ₹912 higher because your card issuer levies a foreign transaction fee (forex markup) of ₹733, along with ₹139 as GST on that fee.
A single charge of ₹912 is easy to overlook. The cumulative cost adds up with many international transactions. Hotel stays, meals, local transport, and shopping also attract similar charges.
The exchange rate is just the starting point. The total cost of an international transaction often includes hidden costs, such as foreign transaction fees charged by your issuer and the taxes applicable to those fees.
How To Calculate Foreign Transaction Fees?
You can calculate foreign transaction fees by converting the purchase amount into Indian rupees, applying your card issuer's foreign transaction fee (forex markup), and adding GST on that fee. Follow these steps to estimate the total amount you will pay.
- Step 1: Identify the transaction amount in foreign currency
First, state the foreign currency the merchant charged for the purchase you made. This is the basic amount on which foreign transaction fee will be charged.
- Step 2: Convert to INR
To convert the foreign currency to INR, use the forex rate quoted by the card network (Visa, Mastercard rate). The card network uses its own settlement rate, which fluctuates day to day and does not always match the retail forex rate.
- Step 3: Apply the issuer's forex markup
Your bank will charge a markup on the converted amount, usually disclosed as a percentage. It depends on the bank and type of card. Some issuers will list this as one number, others will show it as separate charges.
- Step 4: Calculate GST payable on the fee
GST is charged at 18% on the markup amount and not on the total transaction value. Now calculate the GST on the forex markup amount you got in the previous step.
- Step 5: Check for any other charges
Certain cards and transaction types are subject to additional fees. Other fees may apply. Check with your issuer for such details.
This becomes an easy calculation:
- Forex markup fee = Converted INR value × foreign markup rate%
- GST = 18% on the markup fee
- Total amount = Converted INR value + markup fee + GST + applicable charges
Suppose you are making an international purchase of $200 with a credit card that charges a forex markup of 2.5% and a card network exchange rate of ₹83.20 per $1, the calculations are given below:
| Component | Calculation | Value |
|---|---|---|
| Converted INR value | $200 x ₹83.20 | ₹16,640.00 |
| Foreign transaction fee (forex markup at 2.5%) | 2.5% of ₹16,640.00 | ₹416 |
| GST on foreign transaction fee | 18% of ₹416 | ₹75 |
Total amount charged = ₹16,640 + ₹416 + ₹75 = ₹17,131
A $200 purchase has a converted value of ₹16,640 based on the exchange rate alone. The card issuer then applies a foreign transaction fee (forex markup) of ₹416, followed by GST of ₹75 on that fee. As a result, the total amount charged becomes ₹17,131, which is ₹491 higher than the converted transaction value alone.
Foreign Transaction Fees for Different Credit Card Issuers in India
Foreign transaction fees vary across credit card issuers and card variants in India. The table below shows the foreign transaction fees charged by some of the leading banks.
| Bank | Card Variant | Foreign Transaction Fee (Forex Markup) |
|---|---|---|
| HDFC Bank | Infinia | 2% |
| Tata Neu Infinity | 2% | |
| Regalia | 3.5% | |
| ICICI Bank | Emeralde | 2% |
| MakeMyTrip ICICI Bank Credit Card | 0.99% | |
| Times Black ICICI Bank Credit Card | 1.49% | |
| All other cards | 3.5% + GST | |
| SBI Card | Elite | 1.99% |
| All other cards (Platinum Rewards, Prime, etc.) | 3.5% + GST | |
| Axis Bank | BURGUNDY PRIVATE and PRIMUS | 0% |
| RESERVE | 1.5% | |
| MAGNUS and MAGNUS FOR BURGUNDY | 2% | |
| OLYMPUS | 1.8% | |
| Other cards | 3.5% | |
| Kotak Mahindra Bank | Royal Salute, Platinum | 3.5% + GST |
Note: The percentages listed above are the foreign transaction fees (forex markup fees) charged by the card issuer. In addition to this fee, you may also pay GST on the fee, and the final amount charged depends on the card network’s exchange rate and whether the merchant uses Dynamic Currency Conversion (DCC). Since charges may change, always verify the latest fee schedule on your card issuer’s official website.
How To Minimise Foreign Transaction Fees?
You can minimise foreign transaction fees by choosing the right credit card, paying in the local currency, avoiding unnecessary conversion charges, and planning your international payments carefully. Here are some practical ways to reduce these costs:
- Use a low or zero forex markup card: Costs vary significantly across cards. Choosing a card with lower forex charges is the most direct way to reduce what you pay on international transactions.
- Use multi-currency prepaid cards where it makes sense: Multi-currency prepaid cards are digital wallets with separate pockets for different foreign currencies. You can add foreign currencies to these cards in advance. While purchasing, the card automatically pays from the local currency pocket. You can avoid fresh conversion fees every time you use prepaid cards.
- Pay in local currency when travelling: Paying in local currency usually avoids the additional exchange-rate markup associated with DCC, although your card issuer’s forex markup may still apply.
- Avoid Dynamic Currency Conversion (DCC): DCC looks like a helpful option at checkout. The exchange rates are usually less favourable. Some merchants layer on their own markup too.
- Skip airport and hotel currency exchange counters: The rates at these locations tend to be noticeably lower than what a bank or an authorised forex provider would offer.
- Limit overseas ATM withdrawals: Each overseas withdrawal may incur multiple charges, such as an ATM operator fee and an issuer fee charged by the ATM issuer.
- Check digital payment options carefully: Some wallets have competitive rates, but the structure of the fees varies.
- Consider a multi-currency account: If you travel frequently or handle foreign currency transactions for business, holding money in the right currency eliminates the need for repeated conversions.
- Audit recurring international subscriptions: Software tools, streaming platforms, cloud services and AI subscriptions bill in foreign currency on each cycle. Check your subscriptions and unsubscribe from those you do not use often.
- Review your statements periodically: Regularly reviewing your statements can help you identify incorrect foreign transaction fees and keep track of the subscriptions you actually use.
⚠️ WATCH OUT
A zero-forex-markup card is not a zero-cost international transaction. You may be charged for network exchange rates, ATM fees, and DCC charges.
Is 3% a high foreign transaction fee for credit cards in India?
A 3% foreign transaction fee is on the higher end, but not unusual for standard Indian credit cards. Premium travel cards and some international cards may charge less for some types of transactions. Check with your bank and card issuer.
Do foreign transaction fees apply when receiving money from abroad?
What triggers a foreign transaction fee even when you are in India?
Are foreign transaction fees refundable if a purchase is returned?
What is the difference between a foreign transaction fee and the currency conversion rate?
Do debit cards attract foreign transaction fees?
What is the difference between a foreign transaction fee and an ATM withdrawal charge abroad?
How much does a foreign transaction fee cost on a $5,000 payment received from abroad?
What is the easiest way to avoid foreign transaction fees in India?
