The finance ministry on Friday issued a clarification around the new rules under the RBI’s liberalised remittance scheme, where spending in foreign exchange through international credit cards will be covered under the LRS. The ministry has clarified that any payments by an individual using international debit or credit cards up to Rs 7 lakh per financial year excluded from LRS limits and will not attract any TCS.
Also, existing beneficial TCS treatment for education and health payments will also continue.
RBI LRS: Context
The clarification came after the ministry recently announced that the spending in foreign exchange through international credit cards will be covered under the RBI’s liberalised remittance scheme (LRS), under which a resident can remit money abroad up to a maximum of USD 2.50 lakh per annum without the authorisation of the Reserve Bank.
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 beyond USD 2.5 lakh or its equivalent in foreign currency would require approval from the RBI.
Earlier, the usage of international credit cards (ICCs) for making payments for fulfilling expenses during travel outside India was not included in the LRS limit.
According to the notification, the finance ministry, in consultation with the RBI, has omitted Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, thus effectively including forex spending through international credit cards under the LRS.
The Union Budget 2023-24 hiked TCS rates to 20 per cent, from 5 per cent currently, on overseas tour packages and funds remitted under LRS (other than for education and medical purposes). The new tax rates will come into effect from July 1, 2023.
Nangia Andersen India Partner – Regulatory Nischal S Arora said the use of ICC by residents on a visit outside India or even for international purchases on the internet was hitherto not supposed to be included while computing the overall LRS limit of USD 2,50,000 per person per financial year.
“The same now having been omitted shall offer ample clarity to stakeholders for the purposes of determining the limit of USD 2,50,000 under LRS,” Arora said.
IndusLaw Partner Shreya Suri said the move will essentially require persons undertaking transactions through ICCs during their travels in India to be cognizant of the restrictions on transactions listed out in Schedule III of the Rules, which are in terms of monetary caps imposed on certain identified transactions.
“Accordingly, the prior consent requirement as mentioned will kick in only if these caps are breached (and some of these limits are reasonably high as well), and it will have to be analysed how the industry reacts to these changes,” Suri added.
Grant Thornton Bharat Partner Riaz Thingna said the notification essentially means that credit card spends outside India will also get roped within the ambit of the overall cap of USD 2,50,000.
“This is irrespective of the fact that whether such spends are for personal or business purposes and there is a consequential TCS impact,” Thingna added.
Comments
0 comment