Anyone who is planning a trip abroad after 1 July this year needs to know that the application of new Tax Collected at Source (TCS) regulations will affect your expenses. Not just that, the Reserve Bank of India’s (RBI) liberalised remittance scheme (LRS) will now cover spending in foreign currency made through international credit cards. As a part of this scheme, residents can remit up to a maximum of $250,000 per year without requiring RBI authorisation, stated the Ministry of Finance in its notification issued on 16 May 2023. The ministry while issuing the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023 included every international credit card payment under the LRS, further clarifying that any remittance exceeding $250,000 or equivalent in foreign currency would need approval from the RBI.
The ministry in consultation with the RBI, has also removed Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, to efficiently incorporate foreign currency spending through international credit cards into the LRS. In the meantime, the TCS rates have been increased to 20 percent from the current 5 percent for spending remitted under the LRS. Expenses for education and medical purposes will be excluded from these revisions. All of the new tax rates will be applicable from 1 July 2023.
Notably, this came at a time when the use of international credit cards for expenses incurred during travel outside India was not included in the LRS limit.
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Speaking on the same, market experience stated that the removal of Rule 7 will provide clarity to stakeholders regarding the LRS limit and will further make international credit card users aware of the restrictions outlined in Schedule III of the Rules, which specify monetary limits for certain transactions. Also, it will restrict the use of international credit cards for payments made by individuals abroad, thus enabling the RBI to monitor credit card usage more closely and ensuring that credit card payments for foreign tours are subject to tax collection at source (TCS).
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