Prepare to shell more for overseas trips: Credit card spend abroad to come under RBI's remittance scheme

A Finance Ministry notification is sure to dmpen the moods of those who were planning trips or vacations abroad during the sumemr break. The ministry has informed that all the spending in foreign exchange through international credit cards will also be covered under the RBI's liberalised remittance scheme (LRS). Under LRS, a resident can remit overseas a maximum of USD 2.50 lakh per annum without the authorisation of the Reserve Bank of India. Any remittance beyond USD 2.5 lakh or its equivalent in foreign currency would require approval from the RBI. Until now the usage of international credit cards (ICCs) for making payments for fulfilling expenses during travel outside India was not included in the LRS limit.

The Finance Ministry on May 16 notified the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023, to include international credit card payments in the LRS. 

As per the notification, the Finance Ministry in consultation with the RBI, has omitted Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, thus effectively including forex spending through international credit cards under the LRS.

The Union Budget 2023-24 had hiked TCS rates to 20 per cent, from 5 per cent currently, on overseas tour packages and funds remitted under LRS (other than for education and medical purposes). The new tax rates will come into effect from July 1, 2023.

Nangia Andersen India Partner - Regulatory Nischal S Arora said that the use of ICC by residents on a visit outside India or even for international purchases on the internet was hitherto not supposed to be included while computing the overall LRS limit of USD 2,50,000 per person per financial year. "The same now having been omitted shall offer ample clarity to stakeholders for the purposes of determining the limit of USD 2,50,000 under LRS," Arora told PTI.

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वित्त मंत्रालय ने जारी किया Credit Card से पेमेंट पर नया नियम#LRS में आने से आप पर कैसा असर?

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IndusLaw Partner Shreya Suri said the move will essentially require persons undertaking transactions through ICCs during their travels in India to be cognizant of the restrictions on transactions listed out in Schedule III of the Rules, which are in terms of monetary caps imposed on certain identified transactions. "Accordingly, the prior consent requirement as mentioned will kick in only if these caps are breached (and some of these limits are reasonably high as well), and it will have to be analysed how the industry reacts to these changes," she told PTI.

Shardul Amarchand Mangaldas & Co Partner Yogesh Chande said deletion of Rule 7 with effect from May 16, 2023, will tighten the usage of international credit cards for making payments by a person towards meeting expenses while such person is on a visit outside India, and will specifically bring it within the purview of Schedule III of Foreign Exchange Management (Current Account Transactions) Rules, which deals with Liberalised Remittance Scheme (LRS). "This should enable the RBI to monitor the usage of credit cards for the purposes of foreign travel more closely. The deletion is to ensure that payments for foreign tours through a credit card do not escape tax collection at source (TCS)," Chande said.

Grant Thornton Bharat Partner Riaz Thingna said the notification essentially means that credit card spends outside India will also get roped within the ambit of the overall cap of USD 2,50,000. "This is irrespective of the fact that whether such spends are for personal or business purposes and there is a consequential TCS impact," Thingna added.