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You should be aware of the liberalized remittance scheme (LRS) cap for international credit card spending starting on April 1, 2024, if you are organizing a trip abroad. Indian banks are preparing for a potential shift in regulations about the use of credit cards abroad.
To ensure a smooth transition, banks and the Reserve Bank of India (RBI) are collaborating closely.
The action intends to control international credit card transactions while staying within the current remittance caps.
The new LRS rules for international credit card spending are:
The proposed changes would allow foreign credit card charges made while going overseas to be deducted from the $250,000 annual cap on remittances permitted by the LRS.
A 20% tax collection at source (TCS) would also be applied to any expenditure over Rs 7 lakh, with a few key exceptions pertaining to healthcare and education, where taxes are significantly lower. If a person's total tax liability is less than the TCS amount, they can be qualified for a tax refund.
The new rules are viewed as a component of the government's larger plan to limit high-value purchases made using foreign credit cards and to stop excessive withdrawals of foreign currency.
However, banks are seeking clarification on how to differentiate between expenses incurred for personal or business use, as well as between the usage of international credit cards and online purchases made in India for things like hotel reservations.
Unless separate credit cards are issued for personal and corporate use, it will be difficult to segregate expenditures.
In the era of ease of doing business, where the government wants to boost exports and manufacturing in India, managing foreign exchange needs a more comprehensive approach than restricting spending through credit cards.
In addition to the current remittance cap, setting a separate limit for foreign exchange spending on credit cards might be beneficial. In credit card transactions that fall under the LRS restrictions, this would remove the requirement for TCS and streamline the reporting process.
There will be difficulties along the way, especially in maintaining the expenditure segregation policy. Individuals with high net worth (HNIs) might consider using other ways to get around these limitations, like using unofficial channels or making reciprocal arrangements with friends.
Re-evaluating credit card laws is the result of recent budget modifications linked to TCS on international travel and LRS payments.
To guarantee a smooth transition for clients, banks are putting a lot of effort into bringing their systems into compliance with the new regulations.
Thank you.
Regards,
Yogita Jhajharia,
Kautilya, IBS Mumbai.
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