International credit card spends may come under LRS

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The Reserve Bank of India is reported to have asked banks to be ready to include international credit card spends in the liberalised remittance scheme (LRS) by April 1, according to a report in The Economic Times. The July 2023 notification by the government had kept spending through international credit cards outside the purview of LRS. Several banks are getting ready to integrate their systems with RBI’s to capture card spend data of customers during personal foreign tours as they believe that reissuing this specific notification may not go against the model code of conduct.

The NPCI Bharat BillPay Ltd (NBBL), a subsidiary of National Payments Corporation of India, says that the RBI wants all payment streams under a centralised system. The report says the centralisation will allow standardisation of settlement cycles for merchants, proper data capture as well as customer grievance system.

LRS Limit: If the foreign credit card transactions are brought under LRS, the card spend would fall under the overall limit of $2,50,000 per year allowed under the scheme. And the spend above Rs 7 lakh would attract 20% tax collection at source (TCS) except for expenditures on account of education and medical treatment on which the tax is lower.

Though the tax amount can be offset against the total tax payable by the individual and also refunded in the total tax payable is less that the tax paid.

The report says the move is aimed at discouraging outflow of foreign exchange and curbing large expenditures, which were outside the LRS limit through international credit cards.

But the banks are still waiting for certain clarifications as they are not sure on how to segregate between a personal spend and business expenditure; or, to distinguish between card use while abroad and online card spend from India for booking hotels or flights. In May 2023, a government notification removed, the differential treatment between credit cards and other modes of forex withdrawals under LRS. However the government decided to postpone the implementation of the notification as banks and card networks were not prepared.