Govt eliminates overseas credit card spends from LRS

The finance ministry in a latest move on Friday midnight amended foreign exchange management rules to exclude international credit card spends from the purview of the Liberalised Remittance Scheme (LRS). While issuing a CBDT circular, it is said that “no TCS shall be applicable on expenditure through international credit card while being overseas till further notice”.

This means, that purchase of an international travel ticket, hotel accommodation or any other expenditure of similar nature, at least two of these expenses would qualify as an overseas tour package under the Liberalised Remittance Scheme.

According to the press release, Nothing in Rule 5 shall apply to a person using an international credit card to pay for travel-related expenses when that person is visiting outside of India, according to a Department of Economic Affairs (DEA) notification.

The order from DEA, a division of the ministry of finance, stated that the notification was executed with retroactive effect as of May 16.

Significant alterations

• Changes that are significant to the Liberalised Remittance Scheme (LRS) and the Tax Collected at Source (TCS)
• There would be no change in the rate of TCS for all LRS purposes and for international travel packages, regardless of the method of payment, for sums up to 7 lakh per person per year.
• The government extends the deadline for the implementation of the revised TCS rates and for inclusion of credit card payments in LRS.
• The new TCS rates will apply from October 1, 2023.
• Transactions through International Credit Cards while being overseas would not be counted as LRS and hence would not be subject to TCS.

What is LRS?

LRS, also known as the Liberalised Remittance Scheme. The Reserve Bank of India launched this initiative in its foreign exchange strategy in 2004. It aimed to streamline and simplify the process of sending money outside of India.

The Foreign Exchange Management Act (FEMA) of 1999’s prohibitions on overseas financial transfers were bypassed by Indians thanks to this programme. Under LRS, residents may freely remit money for a variety of legal transactions involving a current or capital account, up to a predetermined limit.