Bringing credit card spends abroad under the liberalised Remittance Scheme (LRS) may not happen soon, as banks say they have not received any communication from the government or the Reserve Bank of India (RBI) about making changes in their systems to enable tracking and reporting of such spending.
If the spending is brought under LRS, then such spending will attract Tax Collected at Source (TCS) at a rate of up to 20 per cent.
‘No communication’
businessline spoke to two public-sector bank chiefs to find out how prepared banks are. However, they said they have yet to get any communication about making changes to the current system. Earlier, the Finance Ministry had said: “To give adequate time to banks and card networks to put in place the requisite IT-based solutions, the government has decided to postpone the implementation of its May 16th e-gazette notification.” This would mean that transactions through International Credit Cards while overseas would not be counted as LRS and hence would not be subject to TCS. The release dated May 19 stands superseded, it added.
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Under LRS, all residents, including minors, are allowed to freely remit up to $250,000 per financial year (April–March) for any permissible current or capital account transaction or a combination of both. Further, residents can access foreign exchange facilities only within the limit of $250,000. Spending through a debit card abroad is covered under this, but credit card is not. On May 16, the Finance Ministry amended the Foreign Exchange Management (Current Account Transactions) Rules, 2000, to bring credit cards under this. However, after a lot of hue and cry, on June 28, it decided to postpone implementation.
The government has repeatedly maintained that the issue of bringing credit card spending abroad under LRS has been postponed and not put on the back burner. However, there is a feeling that, considering the general election scheduled for next year, it has been set aside for the time being.
Also read: LRS: Resident Individuals may open a Foreign Currency Account in IFSC
Efforts by the government to put a threshold on such spending also did not result in a positive response. On May 19, the Ministry said in a press release that concerns have been raised about the applicability of Tax Collection at Source (TCS) to small transactions under the LRS from July 1, 2023. To avoid any procedural ambiguity, it has been decided that any payments by an individual using their international Debit or Credit cards up to ₹7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS, the release said.
The government has already extended the date to October 1 from July 1 for implementing an increased rate of TCS for purposes other than education fees, medical expenses, and the purchase of overseas tour packages. It may be noted that amendments in the Finance Act 2023 prescribed an increase in the rate of TCS to 20 per cent from 5 per cent for remittances under LRS as well as for the purchase of overseas tour packages. It removed the threshold of ₹7 lakh for triggering TCS on LRS. These two changes are not applicable when the remittance is for education or medical purpose. TCS rates for education and medical expenses beyond ₹7 lakh range between 0.5 and 5 per cent.