New rule for international credit card users: Spending in foreign exchange through international credit cards will be covered under the RBI’s liberalised remittance scheme (LRS). On May 16, the Finance Ministry notified the amended rules under the Foreign Exchange Management Act (FEMA), which has brought credit card spending outside India under the LRS. Earlier, the usage of international credit cards (ICCs) for making payments for fulfilling expenses during travel outside India was not included in the LRS limit. Only debit cards, forex cards, and bank transfers were included. “With immediate effect, transactions made with credit cards outside of India fall under the LRS’s purview, enabling the higher TCS levy that was promised in the Budget for 2022–23 to take effect on July 1,” said Vinit Khandare, CEO and Founder, MyFundBazaar. Govt omits Rule 7 of the Foreign Exchange Management Rules, 2000
According to the notification, the Finance Ministry, in consultation with the RBI, has omitted Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, thus effectively including forex spending through international credit cards under the LRS.‘Rule 7’ exempts overseas use of international credit cards from ‘Rule 5’, which mandates prior approval from the Reserve Bank of India.
Technically, a TCS levy of 5% will come into effect on such transactions till July 1 (except for medical and education-linked sectors), which would then increase to 20% after July 1.
“This is big. By removing rule 7, this changes the game. Every international credit card transaction, from today, made by an individual => will be under LRS limits. Means 5% TCS till July 1. And 20% Tax collected at source after that. (Can be adjusted against other taxes),” Tweeted Deepak Shenoy, Founder and CEO of Capital Mind.
Now, there is an extra cost in that there will be a 5% TCS charge for credit card holders who travel abroad or make payments abroad. As per Vinit, differentiating between distinct uses of credit cards will require clarification from the authorities.
Foreign costs must now be separately listed in the credit card statement for each category. So far as operational problems are concerned, CBDT or RBI will need to provide clarification, he added…Read More
Source By: livemint
