According to officials in the Ministry of Finance, the center is in talks to include foreign credit card purchases over Rs 7 lakh under the Liberalized Remittance Scheme (LRS), on which a 20% tax may be imposed in the next Union Budget.
The news is anticipated to be made public in Union Budget FY25 during the month of July following the formation of the new government. According to reports, the Department of Economic Affairs is debating implementation, and the majority of banks have completed their corresponding IT systems.
"The majority of public sector banks are now prepared to comply, even if they were previously not ready with their application programming interfaces (APIs). Bank of Baroda, Canara Bank, and SBI have collaborated together. Private sector banks were always prepared, according to a government source.
Since remittances under LRS have increased significantly over the past few years, the decision to include overseas credit card spending under LRS was made with the intention of discouraging significant outflows of foreign currency.
The center intended to introduce this law on April 1, 2024, following an eight-month period of thorough research. Nevertheless, they will probably include it in the next budget release because of the model code of conduct that is in place and some unfinished business that is on the table.
A "disclosure mechanism" that taxpayers must follow in order to confirm the TCS levy with banks and the Income Tax Department has also been proposed by the authorities.
The main worry, according to insiders, was how the Income Tax Department would distinguish between official and personal transactions at that point. The disclosure method will help with this, according to sources.
"If it is an official business visit, then it would be apt that a business credit card is used in the company's name," said a source. Last year, officials did, however, make it clear that TCS would not be granted for international transactions pertaining to corporate or business objectives.
The government said in February of last year that foreign currency credit card purchases will be included in the $250,000 annual limit for LRS. In addition, tax collected at source (TCS) of up to 20% is due by cardholders for overseas transactions made using credit cards.
The government had said in June 2023 that the rate of TCS will remain the same for all LRS purposes and for international trip packages, irrespective of the manner of payment, for sums up to Rs 7 lakh per person annually. Under the LRS, a 20% tax was suggested for all other uses, with the exception of medical care and education, where a far lower tax rate applied.
There is currently no barrier and a 5% TCS applied to international tour packages. The Reserve Bank of India said that during the April–January 2023–24 period, external remittances under the LRS were $27.42 billion, a 24% increase over the $22.08 billion transmitted during the same period last year.
