Credit cards are now covered by the Liberalised Remittance Scheme (LRS)

The Centre has revised the Foreign Exchange Management Act (FEMA) Rules to include overseas credit card purchases in the Liberalised Remittance Scheme (LRS).

Alterations made

  • Credit card purchases made outside of India now fall under the LRS, enabling for a higher TCS rate to be applied.
  • The revision removes the exclusion from the LRS of credit card transactions, which was previously covered by Rule 7 of the Foreign Exchange Management (Current Account Transaction) Rules, 2000.
  • The modifications do not apply to payments made to India for the purchase of foreign products or services.

What exactly is the Liberalised Remittance Scheme (LRS)?

  • The Reserve Bank of India (RBI) offers resident individuals the ability to remit monies abroad for allowed current or capital account operations, or a combination of the two.
  • The scheme was launched in 2004 and has been reviewed and changed on a regular basis by the RBI.
  • Residents can remit up to a specified amount in a fiscal year for approved activities such as education, travel, medical treatment, gifts, and investments in equity and debt instruments, among others, under the plan.
  • The current ceiling for LRS is USD 250,000 each fiscal year.

Qualification for LRS

  • Non-residents, NRIs, persons of Indian origin (PIOs), foreign citizens having PIO status, and foreign nationals of Indian descent are all eligible for LRS.
  • Corporations, partnership firms, Hindu Undivided Family (HUF), Trusts, and other similar entities are NOT eligible for the Scheme.

LRS provides benefits

  • LRS is a simple method for transferring money between two nations that anyone can utilise.
  • It is particularly beneficial to businesses since it allows them to transfer funds to India and investors to receive their investments back home.
  • LRS also has several additional advantages, such as quick transfer timing and no exchange rate concerns.

Concerns about credit card spending

  • The amendment seeks to ensure parity in the use of credit and debit cards, both of which are already covered by the LRS.
  • The modification was triggered by instances of abnormally high LRS payments compared to disclosed incomes.
  • Employee business visits where the employer bears the expenditures are not covered by the LRS.
  • The LRS data acquired from major money remitters revealed that international credit cards with limits above the prescribed norm were being issued.

Exclusions and the Scheme’s Impact

  • The government informed employees that the LRS plan would not cover actual business trips abroad.
  • The application of a 20% TCS on international remittances will mostly effect tour packages, presents to non-residents, and domestic high-net-worth persons investing in assets such as real estate, bonds, and stocks outside India.
  • The Ministry emphasised that the 5% TCS levied on medical or educational expenses overseas will stay constant, with a limit of Rs 7 lakh per year.
And get notified everytime we publish a new blog post.