Representative file image.
Spending in foreign currency through international credit cards will be covered under the Liberalized Remittance Scheme (LRS) of the RBI, under which a resident can remit abroad up to a maximum of $2.50 lakh per year without authorization from the Reserve Bank, according to Finance Ministry. Ministry’s notification.
The ministry on May 16 notified the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023 to include international credit card payments in the LRS. Any remittance exceeding $2.5 million or its equivalent in foreign currency will require approval from the Reserve Bank of India.
Earlier, the use of International Credit Cards (ICC) for making payments to meet expenses during travel outside India was not included in the LRS limit.
As per the notification, the Ministry of Finance, in consultation with RBI, has omitted Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, thus effectively including foreign exchange expenditure through international credit cards under LRS. Has been done
The Union Budget 2023-24 raised TCS rates on foreign tour packages and remittances under LRS (other than education and medical purposes) to 20% from 5% at present. The new tax rates will be applicable from July 1, 2023.
Nangia Andersen India Partner – Regulator Nischal S Arora said that the use of ICC by residents for travel outside India or even for international purchases over the Internet has so far been limited to the overall LRS limit of USD 2,50,000 per person per person. Should not have been included while doing the calculations. financial year.
“The same has now been left open, to provide adequate clarity to the stakeholders for the purposes of prescribing the limit of USD 2,50,000 under the LRS,” Arora said.
Induslaw partner Shreya Suri said the move would mandate that persons transacting through ICCs during their travels in India be aware of the restrictions on transactions listed in Schedule III of the regulations, which with reference to the monetary cap imposed on identified transactions.
Suri said, “Accordingly, the requirement of prior consent will only be mentioned if these caps are breached (and some of these limits are reasonably high), and it will have to be analyzed how the industry reacts to these changes.” “
Shardul Amarchand Mangaldas & Co-Partner Yogesh Chande said that the removal of Rule 7 with effect from May 16, 2023, would further tighten the use of international credit cards for making payments to meet expenses while on a trip outside India. Will be done. In particular, bring it under Schedule III of the Foreign Exchange Management (Current Account Transactions) Rules, which deals with the Liberalized Remittance Scheme (LRS).
Chande said, “This should enable the RBI to more closely monitor the use of credit cards for foreign travel purposes. The deletion is to ensure that the source of payment (TCS) for foreign visits through credit cards ) but not escape the tax collection.” ,
Grant Thornton India partner Riyaz Thingana said the notification essentially means that credit card spends outside India will also come under the overall cap of $250,000.
“This is irrespective of the fact that such expenses are for personal or business purposes and result in TCS effect,” Thingana said.