Central Idea: The Centre has amended rules under Foreign Exchange Management Act (FEMA) Rules, bringing international credit card spends under the Liberalised Remittance Scheme (LRS).

Changes introduced

• Credit card spends outside India now fall under the LRS, allowing for the application of a higher TCS rate.
• The amendment removes the exclusion of credit card transactions from the LRS, which was previously covered under Rule 7 of the Foreign Exchange Management (Current Account Transaction) Rules, 2000.
• The changes do not apply to payments for the purchase of foreign goods/services from India.

What is Liberalised Remittance Scheme (LRS)?

• LRS is a facility provided by the Reserve Bank of India (RBI) to resident individuals to remit funds abroad for permitted current or capital account transactions or a combination of both.
• The scheme was introduced in 2004 and has been periodically reviewed and revised by the RBI.
• Under the scheme, resident individuals can remit up to a certain amount in a financial year for permissible transactions including education, travel, medical treatment, gifts, and investments in equity and debt securities, among others.
• The limit for LRS is currently set at USD 250,000 per financial year.

Eligibility for LRS

• LRS is open to everyone including non-residents, NRIs, persons of Indian origin (PIOs), foreign citizens with PIO status and foreign nationals of Indian origin.
• The Scheme is NOT available to corporations, partnership firms, Hindu Undivided Family (HUF), Trusts etc.

Benefits provided by LRS

• LRS is an easy process that anyone can use to transfer money between two countries.
• It’s especially useful for businesses because they can use it to transfer funds to India, and investors can receive their investments back home.
• LRS also has some added benefits, like fast transfer timing and no issues with exchange rates.

Concerns with credit card spends

• The amendment aims to achieve parity between the usage of credit and debit cards, which were already covered under the LRS.
• Instances of disproportionately high LRS payments compared to disclose incomes prompted the amendment.
• Business visits of employees, where costs are borne by the employer, are not covered under the LRS.
• The data collected from major money remitters under the LRS indicated that international credit cards were being issued with limits exceeding the prescribed norm.

Exclusions and impact of the Scheme

• The government assured that the LRS scheme would not cover genuine business visits abroad by employees.
• The imposition of a 20% tax collection on source (TCS) for foreign remittances would primarily affect tour travel packages, gifts to non-residents, and domestic high net-worth individuals investing in assets like real estate, bonds, and stocks outside India.
• The Ministry emphasized that the 5% TCS levied on medical or education expenses abroad, allowed up to ₹7 lakh per year, and would remain unchanged.

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