Under the liberalised remittance scheme, all resident individuals (including minors) are allowed to freely remit up to $2,50,000 in a financial year (April-March)
Aday after the government amended the foreign exchange management rules to apply 20% TCS on foreign remittances through the RBI’s liberalised remittance scheme (LRS), the finance ministry has issued the clarification in the form of (FAQs) frequently asked questions. As per the latest rules, forex spending through international credit cards will also be covered under the LRS.
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Under the liberalised remittance scheme, all resident individuals (including minors) are allowed to freely remit up to $2,50,000 in a financial year (April-March) for any permissible current or capital account transaction or a combination of both.
Here’s the government’s clarification on new credit card LRS rule and the TCS changes:
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Tax Collected at Source (TCS) Already There on Debit Card
- While on a visit abroad, a person could use international debit cards or other methods or international credit cards for undertaking current account transactions. Payments by debit cards etc. have been treated as LRS even earlier. By bringing TCS on Credit Card, it plugs the loophole
- Due to the exemption under erstwhile Rule 7, expenditures through credit cards were not accounted for under the specified LRS limit, which has led to some individuals exceeding the LRS limits
- Data collected from top money remitters under LRS reveals that international credit cards are being issued with limits in excess of the present LRS limit of USD 2,50,000. The differential treatment between debit cards and credit cards needed to be removed in the interest of uniformity and equity in the treatment of modes of drawal of foreign exchange and for capturing total expenditures under LRS for prudent foreign exchange management and to prevent by-passing of LRS limits
- RBI had written to the government on more than one occasion, pointing to the need to remove this differential treatment
- Under the LRS, in the financial year 2021-22, a total of USD 19.61 billion was remitted, rising from USD 12.68 billion in 2020-21. In 2022-23, it rose to more than USD 24.0 billion, of which overseas travel accounted for more than half
- Instances have come to notice where the LRS payments are disproportionately high when compared to the disclosed incomes
- TCS is like TDS, it is NOT a final burden of TAX. One can claim it as Refund while filing ITR
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TCS Will Not Be Deducted
- Will NOT apply on the payments for purchase of foreign goods/services from India such as newspapers or online streaming services
- Will NOT apply on Company/Business trips (IT sector employees unaffected)
- Will Not apply on the payments for ‘Education’ & ‘Medical purposes’
Applicability
- Will basically APPLY to the Rich for Buying Property, Shares & Foreign Travel
- Primary Impact only on investment in assets such as real estate, bonds, stocks outside India by HNI and tour travel packages or gifts to non-residents. does not effect any changes in the use of international credit cards by residents while in India
- Does not affect any changes in the use of international credit cards by residents while in India. Overseas tour package booked in Indian credit card (rupees) is NOT affected. (Eg: Booked from MakeMyTrip).
