The finance ministry has amended the Foreign Exchange Management (Current Account Transactions) Rules, 2000 to exclude international credit card payments from the Reserve Bank’s Liberalised Remittance Scheme (LRS). The modification will go into effect retroactively on May 16, reducing the tax collection at source for ICC payments made outside India.
In accordance with a notification sent by the finance ministry on Friday night, payments made using international credit cards (ICC) while visiting another country won’t be subject to Tax Collected at Source (TCS).
On Friday, the ministry amended the Foreign Exchange Management (Current Account Transactions) Rules, 2000 to exclude ICC from the Reserve Bank’s Liberalised Remittance Scheme (LRS), which attracts TCS above a threshold at specified rates, ending the ICC debate.
The notification introduced Rule 7 to the FEM (CAT) Rules and stated that “…the use of ICC for making payment by a person towards meeting expenses while such person is on a visit to a foreign country” is not covered by LRS. The modification will go into effect retroactively on May 16, according to a statement from the ministry.
The modification undoes a ministry notification dated May 16 that left out Rule 7 of the FEM (CAT) Rules and effectively included foreign exchange spend through ICCs under LRS.
A resident is permitted to send up to USD 250,000 overseas each year under LRS. Beyond this, any payments would require RBI authorization. Remittances made under the LRS are also subject to TCS. The compliance burden for banks would have grown had ICC spending been included in LRS.
Public worries about the effects of the FEM (CAT) Rules amendment on May 16 were voiced.
In a statement on June 28, the ministry had stated that “the government has decided to postpone the implementation of its May 16, 2023 notification to allow adequate time to banks and card networks to put in place necessary IT-based solutions.” The government has stated that transactions made through ICCs while “in a foreign country would not be counted as LRS and hence, would not be subject to TCS.”
The finance ministry has amended the Foreign Exchange Management (Current Account Transactions) Rules, 2000 to exclude international credit card payments from the Reserve Bank’s Liberalised Remittance Scheme (LRS). The modification will take effect retroactively on May 16, reducing tax collection at source for ICC payments made outside India.
The amendment adds Rule 7 to the FEM (CAT) Rules, stating that ICC payments for meeting expenses while on a visit outside India will not be covered by LRS. The modification will go into effect retroactively on May 16, and the government has postponed the implementation of the May 16, 2023 notification to allow banks and card networks to implement necessary IT-based solutions..
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