On May 16, 2023, the Ministry of Finance issued a notification G.S.R. 369(E), through which Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 [‘FEM(CAT) Rules, 2000’] was omitted. In effect, it removes the erstwhile exemption given under the Current Account Rules to the use of international credit cards by a person for meeting his / her expenses when he/she is abroad.
The Finance Act, 2020 had introduced Section 206C(1G) w.e.f October 01, 2020 to bring remittances made under the Liberalized Remittance Scheme (‘LRS’) within the purview of TCS. Accordingly, TCS @ 5% was to be collected on amounts remitted in excess of Rs. 7 lakhs for the purpose of medical treatment and any purpose other than the purchase of overseas tour package. Further, if the LRS remittance is made out of a loan obtained for the purpose of education from any financial institution as defined under Section 80E, the TCS was to be collected @ 0.5% on the amount remitted in excess of Rs. 7 lakhs. Lastly, if the remittance is for the purpose of purchasing overseas tour package, applicable TCS rate was 5% on the entire remittance amount. The same is tabulated as under:
Recently, vide Finance Act 2023, the rate and limits for TCS on LRS remittance has been revised with effect from July 1, 2023. The revised limits and rates are as under:
Now, as discussed earlier, Rule 7 of the FEM(CAT) Rules, 2000 has been omitted. Therefore, any remittance made by a person through his / her international credit card during a visit abroad shall now also be part of his/her LRS limits and be liable for TCS @ 20%.
As per the recent FAQ issued by the Ministry of Finance, the said omission was brought in after instances came across where the LRS payments were disproportionately high when compared to the disclosed income of the person. It was also observed that certain individuals were exceeding their LRS limit of USD 250,000 by making remittances through international credit cards. Further, even the international credit cards were issued with limits in excess of the LRS limit.
After facing public backlash, a press release was issued on May 19, 2023, wherein it was clarified that the payments made using international debit / credit card upto Rs. 7 lakhs would be excluded from the LRS limit and thus will not attract TCS. Further, it was notified that the said TCS applicability would come into effect from July 01, 2023.
Our comments –
The number of notifications/clarification/FAQs being issued by the Ministry indicates that the Government policy on the said issue is still not settled. Indeed, in the latest press release issued, it has been mentioned that necessary amendments shall be made in the Current Account Rules and therefore, one needs to wait and watch as to what would be the final outcome of these changes. In the meantime, it would be safe to state that any remittance out of international credit card or debit card in excess of Rs. 7 lakhs would immediately attract TCS provisions.
The Government should consider reducing the rate of TCS on overseas tours atleast in case of persons who are return-filers considering that the stated purpose of the Government behind these amendments is to plug cases where the overseas spend of the remitters is not in tandem with the total income declared by such remitters.
The above document is contributed by – Anjali Agrawal, Partner
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