20% TCS, RBI LRS Limit On International Credit Cards: Check Finance Ministry’s Clarification

A day after the government amended Foreign Exchange Management Rules to introduce 20% TCS on foreign remittances through RBI’s Liberalized Remittance Scheme (LRS), the Finance Ministry issued clarifications in the form of Frequently Asked Questions (FAQs). Have done As per the latest rules, foreign exchange expenditure through International Credit Cards will also be covered under LRS.

Under the Liberalized Remittance Scheme, all resident individuals (including minors) are permitted to freely remit up to $2,50,000 in a financial year (April-March) for any permitted current or capital account transaction or a combination of both.

Here’s the government’s clarification on the new credit card LRS rules and changes in TCS:

Tax Collected at Source (TCS) is already there on Debit Card

• While traveling abroad, a person can use international debit cards or other modes or international credit cards to make current account transactions. Payments by debit cards etc. have been treated as LRS in the past also. It removes the loophole by bringing TCS on credit cards
• Due to the exemption under erstwhile Rule 7, the expenditure incurred through credit card was not accounted for under the specified LRS limit, due to which some individuals have exceeded the LRS limit.
• Data collected from top money remitters under LRS shows that international credit cards are being issued with limits in excess of the current LRS limit of USD 2,50,000. Removal of distinction between debit cards and credit cards in the interest of uniformity and equity in treatment of methods of drawing foreign exchange and to capture total expenditure under LRS and to prevent LRS circumvention for prudent foreign exchange management need to. Limit
• RBI had written to the government on more than one occasion pointing out the need to remove this differential treatment
• Under the LRS, in the financial year 2021-22, a total of US$ 19.61 billion has been disbursed, as against US$ 12.68 billion in 2020-21. In 2022-23, this rises to over USD 24.0 billion, of which foreign travel contributed to more than half.
• There have been instances where LRS payments are disproportionately high as compared to disclosed income
• TCS is like TDS, it is not the final burden of tax. It can be claimed as refund while filing ITR

TCS will not be deducted

• Will not apply to payments for purchase of foreign goods/services such as newspapers or online streaming services from India
• Not applicable on company/business trips (IT sector employees unaffected)
• Will not apply to payments for ‘education’ and ‘medical purposes’

applicability

• Will basically be applicable for the rich to buy property, shares and travel abroad
• Investment in assets like real estate, bonds, stocks outside India by HNIs and primary impact on travel travel packages or gifts to non-residents. Does not make any changes to the use of International Credit Cards by residents while in India
• Does not affect any change in the use of International Credit Cards by residents during their stay in India. Foreign tour packages booked on Indian Credit Cards (Rupees) are not affected. (Example: Booked from MakeMyTrip).