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.
Source: https://m.economictimes.com/wealth/spend/20-tcs-on-credit-card-forex-payments-from-july-1-to-come-under-lrs-how-it-will-impact-you/articleshow/100327402.cms#:~:text=Synopsis&text=The%20finance%20ministry%20has%20amended,of%20%242%2C50%2C000%20per%20person.