NEW DELHI: The Ministry of Finance on Friday said it decided that any payments by an individual using their international debit or credit cards up to Rs 7 lakh per financial year will be excluded from the RBI’s Liberalised Remittance Scheme (LRS) limits and hence, will not attract any Tax Collected at Source (TCS).
Existing beneficial TCS treatment for education and health payments will also continue. The clarification comes after some concerns were raised about the applicability of Tax Collection at Source (TCS) to small transactions under the Liberalized Remittance Scheme (LRS) effective July 1, 2023.
Earlier on Thursday, Tax Collected at Source (TCS) for spending through international credit cards under RBI’s Liberalised Remittance Scheme on overseas tour packages and any other remittance (such as for bonds, shares and real estate gifts) were exempted within the annual limits of $250,000.
The TCS for these cases, when it crosses $250,000 per fiscal, will be now at 20 per cent from July 1, against the earlier 5 per cent.
The Finance Ministry said the changes were necessitated as some instances have come to notice where the LRS payments were “disproportionately high” when compared to the disclosed incomes. The new rules under LRS doesn’t change anything except bringing parity between the usage of debit and credit cards abroad.
By bringing TCS on credit card under LRS, the government aims at plugging the loophole. Earlier, expenditures through credit cards were not accounted for under the specified LRS limit, which had led to some individuals exceeding the annual limits.
The differential treatment between debit cards and credit cards is sought to be removed through the changes. Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to $2,50,000 per financial year (April-March) for any permissible current or capital account transaction or a combination of both.
The scheme was introduced on February 4, 2004, with a limit of $25,000. The LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions. There are no restrictions on the frequency of remittances under LRS.
IT sector workers going on company or business trips will be unaffected by the new provisions that apply largely to the rich for buying property, shares and foreign travel.
The new provisions will not apply on payments for ‘education’ and ‘medical’ purposes and do not impact changes in the use of international credit cards by residents while in India.
The Centre on Tuesday brought international credit card spending outside India under the Liberalised Remittance Scheme (LRS) and issued an explainer on Wednesday to clear any confusion. (ANI)