scorecardresearchCredit card usage abroad to be treated under Liberalised Remittance Scheme

Credit card usage abroad to be treated under Liberalised Remittance Scheme limit: Report

Updated: 18 May 2023, 12:55 PM IST
TL;DR.

The new rules could urge RBI to monitor the use of credit cards for foreign travel.

Under LRS, all residents are allowed to freely remit up to $250,000 per financial year

Under LRS, all residents are allowed to freely remit up to $250,000 per financial year

If you are paying through an international credit card abroad, you need to be cautious as such expenditure will now be treated as part of the limit under the Liberalised Remittance Scheme (LRS), reported Business Line.

The latest rules have already been notified by the Finance Ministry.

Under LRS, all residents are allowed to freely remit up to $250,000 per financial year for any permissible current or capital account transaction or a combination of both. Further, residents can access foreign exchange facility only within the limit of $250,000

Rule 5 of Foreign Exchange Management (Current Account Transactions) Rules, 2000, mandates prior approval from Reserve Bank of India for every drawal of foreign exchange for transactions. However, Rule 7 says Rule 5 will not apply to international credit card payments made during an overseas visit.

The Finance Ministry, in consultation with the RBI, has notified omission of Rule 7 with effect from May 16.

Explaining the changes, Abhishek Sanyal, Partner with Economic Laws Practice, says Rule 7 excluded the applicability of the $250,000 limit per financial year under LRS for international credit card payments during an overseas visit.

“This rule has been omitted and, accordingly, all payments made using an international credit card are also within the $250,000 limit per financial year. The intent is that all current account transactions by resident Indians should be under the $250,000 limit per financial year,” he said.

It may be noted that in the annual budget, TCS (tax collected at source) of 20 per cent was made applicable with effect from July 1, 2023, on any payment towards an overseas tour package.

This will also be applicable on international credit card spends. Yogesh Chande, Partner with Shardul Amarchand Mangaldas & Co, says the deletion of Rule 7 will tighten the use of international credit cards during overseas visits, and will bring it under the purview of schedule III of the Foreign Exchange Management (Current Account Transactions) Rules, which deals with LRS.

This would allow RBI to closely monitor the use of credit cards for foreign travel.

“The deletion is to ensure that payments for foreign tours through a credit card do not escape tax collection at source,” he said.

 

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First Published: 18 May 2023, 12:55 PM IST