The ministry issued two sets of detailed FAQs a day after it notified that credit card transactions will be covered by LRS, a decision that finance minister Nirmala Sitharaman had announced in Parliament during the Budget passage. The new rules will kick in from July.
“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 of $250,000. The differential treatment between debit cards and credit cards needed to be removed in the interest of uniformity and equity in the treatment of modes of drawal of foreign exchange and for capturing total expenditures under LRS for prudent foreign exchange management and to prevent by-passing of LRS limits. The RBI had written to the government on more than one occasion, pointing to the need to remove this differential treatment,” the finance ministry said, adding that debit cards were included earlier.
During the last financial year, flows under LRS went up 22% to $24 billion, of which overseas travel accounted for more than half. The ministry issued another set of FAQs on TCS, where the rate has been increased in several cases as the government has come across many instances where LRS payments are “disproportionately high” when compared with the disclosed taxable income.
“(The) primary impact (is) only on investment in assets such as real estate, bonds, stocks outside India by HNIs (high net worth individuals) and tour travel packages or gifts to non-residents,” it said. Reiterating that the move will not impact medical and education expenses, the FAQs said, “If the TCS is of a person not being a taxpayer, then the 20% rate on such presumed income is not high. The tax rate slab of 20% starts in the new regime for incomes over Rs 12 lakh and is 30% for incomes over Rs 15 lakh.”
A detailed clarification for TCS on travel and incidental expenses related to education and medical treatment will be issued in the next few days.