New Delhi (TIP)- The finance ministry on midnight Friday, June 30, amended foreign exchange management rules to exclude international credit card spends from the purview of liberalised remittance scheme (LRS) hours after issuing a CBDT circular that “no TCS shall be applicable on expenditure through international credit card while being overseas “till further order”.
“Use of International Credit Card while outside India.— Nothing contained in rule 5 shall apply to the use of International Credit Card for making payment by a person towards meeting expenses while such person is on a visit outside India,” the notification issued by the Department of Economic Affairs (DEA) said. The notification is implemented with retrospective effect from May 16, DEA, an arm of the finance the ministry said in the order.
LRS tweak is ill-conceived
The Union finance ministry’s decision to include international spending on credit cards within the $250,000 which an individual is allowed to remit abroad annually under the liberalised remittance scheme (LRS) is a bureaucratic, self-defeating and regressive move that threatens to undo the gains made in formalising transactions and easing compliance.
It means individuals will have to bear the burden of 20% tax collected at source (TCS; duly refundable when returns are filed) for transactions in a foreign currency, irrespective of whether this is being done abroad, or from India. There have been clarifications since, both on record and off, but some of these merely add to the complexity. And the emphasis that only HNIs (high networth individuals) will be affected seems to suggest it is fine to do this to the rich (even the well-off, given that an increasing number of Indians are now travelling overseas), a sentiment out of place in 21st-century India. Because this money will eventually be returned on filing tax returns — credit card issuers and banks must be quailing at the paperwork involved — there will be no significant boost to the government’s revenues. It will add avoidable friction to compliance and make an otherwise straightforward process nightmarish.
Source: HT