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In a new notification, the Indian Finance Ministry has included the usage of credit cards abroad by an Indian resident under the Liberalised Remittance Scheme (LRS), which will attract a 20% TCS on such use.
In an amendment to the Foreign Exchange Management Act, transactions in forex through credit cards outside India will be brought under LRS, resulting in a higher levy of TCS, effective from 1st July 2023. Earlier, any credit card payments made abroad were excluded through Rule 7 of the FEMA (Current Account Transactions) Rules, but the same has now been omitted to include the same.
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Under the LRS, the RBI allows individuals to spend funds abroad to the threshold of $250,000, after which individuals are required to gain permission for further outward remittances from the Central Bank. This scheme was formulated to prevent the excess outflow of forex while regulating foreign investments and checking money laundering.
International credit card transactions will attract a TCS levy of 5% till June 30. After which the same would swell to 20%. Under these changes, expenses incurred for medical and education expenses, will not be considered.
According to a Ministry official, there was a need for such a move from the domestic travel industry. India has been seeing unparalleled interest from its citizens in foreign travel. Indians spent $12.51 billion on overseas travel from April-February 2023, up 104% on an annual basis. Moreover, in February 2023 alone, the outward remittance by Indian individuals was $2.1 billion.
According to experts, this move will restrict the usage of foreign credit cards abroad as it will increase foreign travel expenses. Moreover, this move will also help monitor high-value overseas transactions. But some experts feel that this move will increase legal formalities while restricting funds until the same can be claimed on the ITR.
- Aman Agarwal
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