Foreign currency spending via international credit cards falls under the RBI’s liberalized remittance scheme (LRS), under which a resident can transfer funds abroad up to a maximum of USD 2.50 lakh per year without the authorization of the Reserve Bank, according to a Notification Ministry of Finance.
The Department 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 over USD 2.5 lakh or its foreign currency equivalent is subject to RBI approval.
Previously, the use of international credit cards (ICCs) for making payments to meet expenses while traveling outside India was not included in the LRS limit.
According to the notice, the Treasury Department, in consultation with the RBI, has omitted Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, effectively including forex spending through international credit cards under the LRS.
The 2023-24 EU budget increased TCS rates to 20 percent, from 5 percent currently, on foreign travel packages and funds transferred under LRS (other than for education and medical purposes). The new tax rates will take effect on July 1, 2023.
Nangia Andersen India Partner – Regulatory Nischal S Arora said that the use of ICC by residents while visiting outside India or even for international purchases on the Internet was not allowed to count towards the total LRS limit of USD 2,50,000 until now. per person per financial year.
“The fact that the same has now been omitted will provide sufficient clarity to stakeholders for determining the USD 2,50,000 limit under LRS,” Arora said.
IndusLaw partner Shreya Suri said the move essentially requires individuals transacting through ICCs during their travels in India to be aware of the restrictions on transactions listed in Schedule III of the rules, which in terms of monetary limits imposed on certain identified transactions.
“Accordingly, the required prior consent, as mentioned, will only come into effect if these limits are exceeded (and some of these limits are also quite high), and it will be necessary to analyze how the industry responds to these changes,” added Suri .
Shardul Amarchand Mangaldas & Co partner Yogesh Chande said that effective May 16, 2023, the deletion of Rule 7 will tighten the use of international credit cards for making payments by a person for meeting charges while that person is visiting outside India , and will specifically bring it within the scope of Schedule III of Foreign Exchange Management (Current Account Transactions) Rules, which deals with Liberalized Remittance Scheme (LRS).
“This should enable the RBI to more accurately track credit card usage for overseas travel. The deletion is to ensure payments for overseas travel made by credit card do not escape tax collection at source (TCS), ” Chande said . .
Grant Thornton Bharat partner Riaz Thingna said the notification essentially means credit card spending outside of India is also within the scope of the $2,50,000 aggregate limit.
“This is regardless of whether such expenses are for personal or business purposes and there is a consistent TCS impact,” Thingna added.
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