Credit card payments for foreign travel will be brought under Reserve Bank's Liberalised Remittance Scheme (LRS) to ensure that such expenses do not escape TCS (Tax Collection at Source).
While moving the Finance Bill 2023 for consideration and passage in the Lok Sabha on Friday, Finance Minister Nirmala Sitharaman said the Reserve Bank has been asked to look into ways to bring credit card payments on foreign tours under the LRS.
"It has been represented that payments for foreign tours through a credit card are not being captured under the Liberalised Remittance Scheme (LRS) and such payments escape tax collection at source (TCS)," Sitharaman said.
The RBI is being requested to look into this with a view to bring credit card payments for foreign tours within the ambit of LRS and tax collection at source thereon, she added.
The Union Budget 2023 proposed a TCS for foreign outward remittance under LRS other than for Education and medical purposes of 20 percent applicable from July 1, 2023. Before this proposal, the TCS of 5 percent was applicable on foreign outward 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 where a person selling specific items is liable to collect tax from a buyer at a prescribed rate and deposit the same with the government.
The LRS, introduced in 2004, initially permitted outflow of USD 25,000. The LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions.
LRS permits Indians to freely remit up to USD 250,000 (about Rs 2.05 crore) per financial year for current or capital account transactions or a combination of both. Any remittance exceeding this limit requires prior permission from the RBI.
The rules clearly mention that one can remit foreign exchange (forex) only for any permissible current account transactions or capital account transactions or a combination of both.
If one wishes to invest abroad in shares, property etc, the LRS rules will define them as capital account transactions.
Only certain capital account transactions are allowed under LRS rules such as opening a bank account abroad i.e. a Foreign Currency Account, purchasing real estate property overseas, for making investments overseas which includes investing in shares, mutual funds, and debt instruments amongst others.
Authorised dealers, such as banks, enable such transactions between residents and their overseas dependents, using only PAN cards for verification.
Besides remittances, LRS can also offer foreign exchange services to Indian citizens for medical expenses or travelling. However, corporates, partnership firms, HUFs, and charitable trusts are not eligible to use the LRS.