Overseas use of international credit card now part of Liberalised Remittance Scheme limit

If you pay through an international credit card abroad, you need to be careful because such expenses will now be treated as part of the limit set forth in the Liberated Remittances System (LRS), according to changing rules notified by the Ministry of Finance.

Under the LRS, all residents, including minors, are allowed to transfer up to $250,000 per fiscal year (April-March) for any permitted current or capital account transaction or a combination of both. Moreover, residents can access the foreign exchange facility only within $250,000.

Also read:LRS: Resident individuals may open a foreign currency account with the IFSC

Rule 5 of the Administration of Foreign Exchange (Current Account Transactions) Rules, 2000 provides for the prior approval of the RBI for every withdrawal of foreign currency for transactions. However, Rule 7 states that Rule 5 will not apply to international credit card payments made during a foreign visit.

Now, the Ministry of Finance in consultation with the Reserve Bank of India has notified to “delete Rule 7” from May 16.

Also read:RBI directs SBM Bank (India) to stop all transactions under the Unliberated Remittance Scheme

Explaining the changes, Abhishek Sanyal, partner in the economic law practice, says Rule 7 excludes the applicability of the $250,000 per fiscal year limit under the LRS for international credit card payments during an overseas visit.

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“This rule has been omitted, therefore, all payments made using an international credit card also fall within the limit of $250,000 per financial year. The intent is that all current account transactions by resident Indians must be less than $250,000 per financial year. It should be noted that in the annual budget, TCS (Tax Collected at Source) of 20 percent has been applied to any payment for an overseas tour package from July 1, 2023. This will also apply to international credit card expenditures.

Yogesh Chande, partner with Shardul Amarchand Mangaldas & Co, says the deletion of Rule 7 will tighten the use of international credit cards during overseas visits, and will subject them to the scope of Schedule III of the Foreign Exchange Management (Current Account Transactions) Rules, which deals with the LRS. This will allow the Reserve Bank of India to closely monitor the use of credit cards for travel abroad. “The omission is to ensure that payments for foreign tours by credit card do not escape tax collection at source (TCS),” he said.