NEW DELHI: A day after bringing international credit card payments under the liberalized remittance scheme (LRS), the government on Thursday said the primary impact of the move will only be on investment in assets such as real estate, bonds, stocks outside India made by high net-worth individuals (HNIs) and tour travel packages or gifts to non-residents.
The finance ministry in a FAQ (frequently asked questions) issued on Thursday clarified that only such remittances which are covered under LRS are liable to tax collection at source (TCS). There has been no change in the TCS rates on medical or education expenses.
The government also justified the move by saying that many instances have come to its notice where the LRS payments are disproportionately high when compared to the disclosed incomes. Under the LRS, there is a limit of USD 250,000 that one can take out of the country for expenses overseas.
The government also levies TCS at varying rates for different categories of expenditures under LRS. The rate varies from 0.5% to 20%. By virtue of international credit card payments now being under LRS, such payments would now also attract TCS.
According to the ministry, payments by debit cards have been treated as LRS even earlier but the credit card payments were not accounted for under the LRS limits. Data collected from top money remitters under LRS reveals that international credit cards are being issued with limits in excess of the present LRS limit.
“Currently, no TCS is applicable on foreign tour payments made via credit card, since these payments are not captured under LRS. RBI has been asked to bring a mechanism to bring these payments under LRS. This will mean such credit card payments will be saddled with an additional 20% cost, which the service provider will be obligated to deposit with the exchequer by the 7th day of the subsequent month,” said Shreya Suri, Partner with IndusLaw.