On 16th May 2023, Department of Economic Affairs, Ministry of Finance issued a notification making an amendment to the Foreign Exchange Management (Current Account Transactions) Rules, 2000.
The notification omitted Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000.
Rule 7 of the Rules provided exemption on the use of International Credit Card for making payment by a person towards meeting expenses while such a person is on a visit outside India.
Therefore, this notification has removed the exemption given to the use of international credit cards for meeting his/her expenses by a person when he is abroad. With the removal of the exemption, the said transaction shall fall under the ambit of Liberalised Remittance Scheme (LRS).
LRS scheme provides a limit amounting to $2,50,000 per financial year on the individual for any permissible current or capital account transaction or a combination of both. Now, the
As the amount remitted outside India under LRS accounted for $ 24 Billion in FY 2022-23 which was a substantial increase from the previous year, the Government is taking measures to ensure that the income declared and foreign spending are not disproportionate.
With this intent, the Government also increased the Tax Collected at Source (TCS) in the Union Budget 2023 on the LRS remittance to 20% without any threshold limit which is effective from 1st July 2023. After the notification, now all spending from ICC outside India shall also comply with the TCS regulations. However, it shall lead to an immediate outgo of 20% while undertaking the transaction but it shall be adjusted/claimed while filing the return.
It will be interesting to see how the transactions undertaken by a person traveling for business shall be accounted for by the bank.
With this amendment, the Government wants to increase the tax buoyancy and widen the tax base.
