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New Delhi [India], May 19 : Tax Collected at Source (TCS) for spending through international credit cards under RBI's Liberalised Remittance Scheme on overseas tour packages and any other remittance (such as for bonds, shares, and real estate gifts) will be exempted within the annual limits of USD 250,000, the government clarified on Thursday.TCS for these cases, when it crosses USD 250,000 per fiscal, will be now at 20 per cent from July 1, against the earlier 5 per cent.The Finance Ministry said the changes were necessitated as some instances have come to notice where the LRS payments were "disproportionately high" when compared to the disclosed incomes.The new rules under LRS don't change anything except bringing parity between the usage of debit and credit cards abroad.By bringing TCS on credit card under LRS, the government aims at plugging the loophole. Earlier, expenditures through credit cards were not accounted for under the specified LRS limit, which led to some individuals exceeding the annual limits.The differential treatment between debit cards and credit cards is sought to be removed through the changes.Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April - March) for any permissible current or capital account transaction or a combination of both.The scheme was introduced on February 4, 2004, with a limit of USD 25,000. The LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions. There are no restrictions on the frequency of remittances under LRS.IT sector workers going on company or business trips will be unaffected by the new provisions that apply largely to the rich for buying property, shares and foreign travel.The new provisions will not apply on payments for 'education' and 'medical' purposes and do not impact changes in the use of international credit cards by residents while in India.The Centre on Tuesday brought international credit card spending outside India under the Liberalised Remittance Scheme (LRS) and issued an explainer on Wednesday to clear any confusion.Following are some of the comments on the changes on LR rules:Shreya Suri, Partner, IndusLaw:"The notification omits Rule 7 and accordingly, the Finance Ministry has done away with the Exemption afforded to transactions through international credit cards. This change may have been effected with the intent of including transactions undertaken with international credit cards within the scope of Reserve Bank of India's Liberalised Remittance Scheme ("LRS Scheme").In fact, the finance minister herself in one speech before the Parliament had clarified the government's intent in bringing credit card payments made during foreign tours, within the scope of LRS, given that such payments currently escape tax collection at source."Accordingly, while foreign exchange laws continue to apply to transactions undertaken through international credit cards, there is a clear attempt at bringing these transactions within the scope LRS, with the removal of the Exemption previously.The move will essentially require persons undertaking transactions through international credit cards during their travels in India to be cognizant of the restrictions on transactions listed out in Schedule III of the Rules, which are in terms of monetary caps imposed on certain identified transactions. Accordingly, the prior consent requirement as mentioned will kick in only if these caps are breached (and some of these limits are reasonably high as well), and it will have to be analysed how the industry reacts to these changes.Shruti KP, Partner, IndusLaw:Currently, no tax collection at source (TCS) is applicable on foreign tour payments made through a credit card, since credit card payments are not captured under the Liberalized Remittance Scheme (LRS). RBI has been asked to bring a mechanism to capture these payments under LRS so such payments do not escape the TCS net, which they did yesterday. This will mean that such credit card payments will be saddled with an additional 20% cost, which the service provider will be obligated to deposit with the exchequer by the 7th day of the subsequent month.Assuming the collection mechanism is also through the credit card itself, and the credit card user does not clear dues on time, interest will also accrue on the TCS component. To the extent of TCS deposit with exchequer and credit card bills being cleared by the user, the service provider may also be faced with some cash flow constraints.Alok Agrawal, Partner, Deloitte India:Budget 2023 had increased TCS rates on various types of overseas remittances under LRS. FEMA Current Account rules have now been amended so as to bring international credit card expenses incurred while on overseas visits into the ambit of the Liberalised Remittance Scheme (LRS). This amendment seems to have been made with the objective of collecting TCS on overseas tour expenses which are incurred on credit cards.However, with this change, it would need to be seen if expenses incurred by employees on their international work-related trips would also be impacted. If so, this would cause cash flow issues for such employees. RBI may issue operational guidelines/clarifications with more details.Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor

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Business :Here's what experts say about changes made in LRS for credit cards

New Delhi [India], May 19 : Tax Collected at Source (TCS) for spending through international credit cards under RBI's ... ...