Saishree Mohanty, Pune
In a possible shift set to take place after the upcoming general elections in May next year, the Indian government is considering the inclusion of Indians’ credit card expenditures abroad under the umbrella of the Liberalised Remittance Scheme (LRS) for the fiscal year 2025. According to informed sources, this development could come to fruition if the Narendra Modi government secures another term in office.
The government’s stance has seen a recent twist, as the earlier Budget 2023-34 decision to bring overseas credit card expenses within the purview of the LRS was modified. This alteration effectively exempted such transactions from the imposition of the Tax Collected at Source (TCS), offering temporary relief. However, officials remain confident in the future integration of credit card spending under LRS regulations.
Evidently, the government has observed that international credit cards are being issued with credit limits surpassing the present LRS limit of $2,50,000 per annum per person. This exemption from the LRS limit has led to a situation where credit card transactions by individuals exceed the prescribed LRS thresholds, potentially impacting foreign exchange reserves.
As of June 28, the finance ministry announced a fresh threshold of Rs 0.7 million per financial year per individual for TCS on all categories of LRS payments across all modes of payment, regardless of the purpose. Transactions exceeding this threshold are set to incur TCS charges at varying rates. For instance, education remittances financed by education loans will bear a 0.5% TCS, while the rate will be 5% for education and medical treatment-related remittances. The highest rate of 20% will apply to other remittance categories.
In a notable move concerning overseas tour packages, payments up to Rs 0.7 million will attract a TCS of 5%, and transactions surpassing this threshold will face a higher TCS rate of 20% starting from October 1.
Previously, overseas tour packages and LRS spending were subject to a uniform 5% TCS without any specified threshold. However, the implementation of altered TCS rates was postponed from July 1 to October 1 this year. This delay was prompted by concerns raised by banks about the readiness of their reporting systems to accommodate the differentiated TCS structure for diverse categories, such as medical expenses, education remittances, and overseas travel packages.
The data reflects a significant surge in outbound remittances under the LRS, indicating a rising trend. In fiscal year 2022, outbound remittances grew by 55% year-on-year, reaching $19.61 billion. The subsequent fiscal year, 2023, witnessed a 22% increase, amounting to $24 billion. Notably, more than half of these expenses were attributed to overseas travel.
As the Indian government ponders these changes, the financial landscape for credit card spending abroad could undergo a transformation that aims to balance economic stability and responsible overseas expenditures.