RBI raises TCS Rates on international credit card spending | Fusion - WeRIndia

RBI raises TCS Rates on international credit card spending

RBI raises TCS Rates on international credit card spending

The Reserve Bank of India (RBI) has made an important change to its liberalized remittance scheme (LRS). The LRS allows residents to send money abroad without central bank authorization.

The finance ministry issued a notification recently. As per this, spending on international credit cards (ICCs) for foreign exchange transactions will now fall under the LRS limit of $250,000 per annum.

However, any remittance exceeding this limit will require approval from the RBI.

Previously, the use of ICCs for expenses incurred during travel outside India was not included in the LRS limit.

But now, international credit card payments have been brought under the LRS scheme in consultation with the RBI.

It has been brought under the ambit of LRS with the amendment to the Foreign Exchange Management (Current Account Transactions) Rules, 2000.

The Union Budget for 2023-24 has increased the tax collection at source (TCS) rates to 20 per cent. It is applicable to overseas tour packages and funds remitted under LRS.

However, it excluded those used for education and medical purposes. These new tax rates will come into effect from July 1, 2023.

The LRS scheme allows Indian residents to remit up to $250,000 per year without prior RBI approval.

However, the recent inclusion of international credit card spending in the LRS limit, coupled with the higher TCS rates, has raised concerns.

This decision is seen as regressive and ill-advised, potentially hampering India’s efforts to formalize the economy and promoting a shift back to cash transactions.

It will impact both private and business travellers, as they will have to allocate an additional 20 per cent. Besides, it affects their cash flows and increases their budgets.

Moreover, this move could hinder the seamless movement of people in a globalized world.

Furthermore, this decision will impose a significant compliance burden, as individuals may seek refunds. Besides, it increases paperwork as well.

However, the revenue boost for the government from TCS is expected to be minimal, as it can be offset against a person’s tax liability.

While tracking LRS transactions is important, it should not lead to unintended consequences that undermine the overall objective.

Striking the right balance between regulation and facilitating seamless transactions is crucial to ensure the smooth functioning of India’s globalized economy.

Image from Pxhere (Free for commercial use / CC0 Public Domain)

Image Reference: https://pxhere.com/en/photo/1136512

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