International credit cards usage to be under RBI's remittance scheme

The Union Finance Ministry has said that the use of credit card overseas by an Indian resident within the $250,000 limit, that an individual is allowed to remit abroad in a year, has been put under the RBI’s Liberalised Remittance Scheme (LRS). 

According to a Finance Ministry notification issued on May 16, an Indian resident can remit money abroad up to a maximum of $2.50 lakh per annum without the authorisation of the RBI. Any remittance beyond the $2.5–lakh limit or its equivalent in foreign currency would require approval from the RBI. 

The ministry said the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023, will include international credit card payments in the LRS.  

Before this, the usage of international credit cards (ICCs) for making payments for fulfilling expenses during travel outside India was not included in the LRS limit. 

The Budget 2023-24 hiked TCS rates to 20 per cent, from 5 per cent currently, on overseas tour packages and funds remitted under LRS (other than for education and medical purposes). The new tax rates will come into effect from July 1, 2023. 

Under the LRS, RBI allows residents to spend funds abroad up to the specified ceiling for investment and expenditure, which can be travel, education, medical treatment and buying securities and physical assets. 

The move could largely impact high networth individuals who tend to spend a lot during foreign visits as the RBI’s nod is required on breaching the limit. The approval requirement by the RBI will ensure that details of such overseas spendings is reported to the authorities. The government has been trying to keep a track and sharpening its data gathering mechanism as part of efforts to improve oversight of transactions. 

The $250,000 cap on LRS by RBI will conserve foreign exchange, prevent flow of capital, and would regulate foreign investment by individuals. 

Besides, it will also aid efforts to check money laundering, which has been a major focus of the current government. 

Commenting on the update, Deepak Shenoy, Founder-CEO of investment research and wealth management startup Capitalmind, said: "This is big. Removing rule 7 changes the game. Every international credit card transaction, from today, made by an individual => will be under LRS limits. Means 5 per cent TCS till July 1. And 20 per cent tax collected at source after that."

“The notification issued by the Ministry of Finance relating to Foreign Exchange Management rules will have a far-reaching impact on foreign exchange transactions. This implies that the foreign exchange spending on personal transactions of expenses and gifts, medical treatment, etc shall be subject to a ceiling of $2.50 lakh, beyond which RBI approval shall be required. This will accordingly impose restrictions on foreign travel expenses while an individual is abroad and is aimed at scrutiny and conservation of such expenses,” said Jyoti Prakash Gadia, Managing Director, Resurgent India. 

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