Credit card spend in forex to come under LRS

Credit card spend in forex to come under LRS

News: 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.

What changes?
 The amendment is expected to facilitate the monitoring of high-value overseas transactions but does not apply to payments for purchasing foreign goods/services from India.
 A TCS levy of 5% will be applicable on such transactions until 1st July 2023 (except for medical and education-linked sectors).
 After 1st July 2023, the TCS rate will increase to 20% for credit card spends outside India.
 Banks and financial institutions may experience an increased compliance burden due to these changes. Taxpayers can claim refunds on the TCS levy while filing tax returns, which could result in locked funds until refunds are initiated by the tax department.

What is Tax collected at source?
 TCS is the tax payable by a seller, which he collects from the buyer at the time of sale of certain goods or services.
 TCS is governed by Section 206C of the Income-tax Act, which specifies the goods or services on which TCS is applicable and the rates of TCS.
 Some of the goods or services on which TCS is applicable are liquor, timber, tendu leaves, scrap, minerals, motor vehicles, parking lot, toll plaza, mining and quarrying, foreign remittance under LRS, etc.

What is LRS?
 The Liberalised Remittance Scheme is an RBI measure that allows Indian residents to send up to USD250,000 per financial year (April to March) outside India. These funds can be used for any permissible current or capital account transaction, or a combination of both.
 The LRS is for people who are residents of India as defined by the Foreign Exchange Management Act (FEMA). It cannot be used by corporations, partnership firms, Hindu Undivided Family (HUF), trusts, etc.
 The LRS is also available to minors but with some conditions.

What are the permissible current account transactions under the LRS?
 Private visit (other than Nepal & Bhutan), Gift or donation (including rupee gift) to a Non-Resident Indian (NRI) / Person of Indian Origin (PIO), who is a close relative, Emigration, Overseas business trip, Medical treatment abroad etc

Which capital account transactions are permissible under LRS?
 Opening a foreign currency account abroad with a bank outside India, Purchase of foreign property, Investments in overseas shares, securities, mutual funds, etc
Can remittance be done only in US dollars? – No, you can make your remittance in any freely convertible foreign currency.

What is not permitted under LRS?
 You cannot use the LRS to send money for any prohibited activities such as margin trading, lottery, etc, to buy Foreign Currency Convertible Bonds issued by Indian Companies in the overseas secondary market and to trade in foreign exchange abroad.
Source – The Indian Express, HSBC Bank