According to the Finance Ministry, the goal of altering the FEMA law to include international credit card charges under the LRS programme is to bring tax features of payments made with debit and credit cards into line with one another. According to a statement released by the Finance Ministry on Thursday, the Foreign Exchange Management (FEMA) Amendment Rules, 2023 include credit card purchases made abroad as part of the RBI’s LRS programme.
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This will allow for “Tax Collection at Source” (TCS) on the amount spent overseas at the appropriate rates. If the individual paying TCS is a taxpayer, he may be able to offset or claim a credit for any outstanding debts related to income tax or advance tax. The budget for this year included a proposal to raise TCS on international travel packages and funds remitted overseas under LRS from 5% to 20%. Beginning on July 1, the new tax rate will be in force.
Credit card & Debit card rules – A change was made to the FEMA law.
On Tuesday, the ministry had already sent out a notification in this regard, informing people of the change to the FEMA law. Any remittance of foreign currency beyond Rs 2.5 lakh will require RBI permission with the inclusion of LRS in this announcement. International credit card payments for costs spent when travelling abroad had not previously qualified for LRS.
Taken out Section 7
After consulting with the RBI, the Ministry of Finance deleted Section 7 of the FEMA Act, 2000 in a notification. As a result, LRS now applies to payments made using international credit cards processed outside of the country.
Responses from the Ministry
The Ministry released a list of pertinent questions and their responses to this move in an effort to shed some light on the matter. Debit card payments were noted as being already covered by the LRS, however, international credit card costs were not included in this cap. Due to this, a lot of people used to exceed the LRS limit.
RBI sent the government a letter.
According to information obtained from businesses that offer the ability to send money overseas, international credit cards are sometimes issued with the ability to spend more than the LRS limit of Rs 2.50 lakh. The RBI had also written to the government on multiple occasions, the ministry claims, urging it to stop treating foreign debit and credit payments differently.
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