A. What is notified?
The notification dated 16th May 2023 removed the exemption given to the use of international credit cards for meeting his/her expenses by a person when he is abroad and now it will be covered under the Liberalized Remittance Scheme (LRS).
B.What was the earlier position?
Earlier, due to the exemption, expenditures through credit cards were not accounted for under the specified LRS limit of USD 2,50,000 per financial year.
C. Why are changes done?
Exemption is 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-passingLRS limits.
D. Approval will be required?
Prior approval of the Reserve Bank would be required for remittances exceeding the specified limits for :
i. Private visits to any country (except Nepal and Bhutan)
ii. Gift or donation
iii. Going abroad for employment
v. Maintenance of close relatives abroad
vi. Travel for business, attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as an attendant to a patient going abroad for medical treatment/ check-up
vii. Expenses in connection with medical treatment abroad
viii. Studies abroad
E. Tax will be collected (TCS)?
TCS is applicable in the business of trading in alcohol, liquor, forest produce, scrap, sale of goods, foreign remittance through the Liberalised Remittance Scheme, and on the sale of overseas tour packages.
As credit card use will now be covered under LRS, TCS will now be applicable.
Concerns have been raised about the applicability of Tax Collection at Source (TCS) to small transactions under the Liberalized Remittance Scheme (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 upto Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS.
F. What is the reason behind the increase in rates of TCS?
Instances have come to notice where the LRS payments are disproportionately high when compared to the disclosed incomes
Those individuals remitting from their own funds are normally expected to be higher-income taxpayers, and for those remitting through institutional loans for education, a concessional rate of 0.5% is provided for TCS.
G. Who will be affected by change?
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.