Credit card payments for overseas visits will be integrated into RBI’s liberalized installment program
Credit card payments for overseas travel will be placed under the Reserve Bank’s Liberalized Remittance Scheme (LRS), to ensure that such expenses do not escape TCS (Tax Collection at Source) .
On Friday, while moving the Finance Bill 2023 for consideration and passage in the Lok Sabha, Finance Minister Nirmala Sitharaman said the Reserve Bank had been asked to look for ways to introduce credit card payments during tours abroad as part of the LRS.
“It has been indicated that payments for travel abroad by credit card are not taken into account under the liberalized remittance system (LRS) and that such payments escape the collection of tax at the source (TCS),” she said.
The RBI is urged to look into this issue with a view to bringing credit card payments for overseas tours within the scope of the LRS and the collection of withholding tax thereon, said she added.
The 2023 Union Budget proposed a TCS for foreign remittances under the LRS other than for education and medical purposes of 20% applicable from 1 July 2023. Prior to this proposal, the TCS of 5 % was applicable to foreign remittances above Rs 7. lakh.
Tax collected at source (TCS) is an income tax, collected by the seller of specified goods, from the buyer. TCS is a concept that a person selling specific items is required to collect tax from a buyer at a prescribed rate and deposit it with the government.
The LRS, introduced in 2004, initially allowed an outflow of $25,000. The LRS limit has been revised in stages in accordance with prevailing macro and microeconomic conditions.
The LRS allows Indians to freely remit up to USD 250,000 (about Rs 2.05 crore) per financial year for current or capital transactions or a combination of both. Any payment in excess of this limit requires prior authorization from the RBI.
The rules clearly state that currency (forex) can only be remitted for any authorized current account or capital account transaction or a combination of both.
If one wishes to invest overseas in shares, property, etc., the LRS rules will define these as capital account transactions.
Only certain capital account transactions are permitted under the LRS rules, such as opening an overseas bank account, i.e. a foreign currency account, purchasing real estate in abroad, to make investments abroad, including investments in stocks, mutual funds and debt securities.
Authorized resellers, such as banks, allow such transactions between residents and their overseas dependents, using only PAN cards for verification.
Apart from remittances, LRS can also offer currency exchange services to Indian citizens for medical or travel expenses. However, corporations, partnership companies, HUFs and charitable trusts are not eligible to use the LRS.
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