Indian Government considers including overseas credit card spending in LRS framework

The Indian government's decision regarding credit card spending abroad has undergone changes. Initially, the Centre altered its Budget 2023-34 decision to include overseas credit card spending within the Liberalised Remittance Scheme (LRS), leading to the exemption of such transactions from Tax Collected at Source (TCS) for the time being.

Sources indicate that if the Narendra Modi-led government is re-elected after the general elections in May next year, spending by Indians through credit cards abroad will likely be incorporated into the LRS framework in the fiscal year 2025. The move is driven by the discovery that international credit cards often exceed the existing LRS limit of $250,000 per annum per individual. The unrestricted issuance of these cards contributes to exceeding LRS limits, impacting forex reserves.

As of now, overseas tour packages and LRS spending are subject to a 5% TCS, and there is no specific threshold for this tax. However, changes are set to take effect from October 1. For LRS payments, including education loans and medical treatment, the new threshold for TCS is Rs 0.7 million per financial year per individual. Below this threshold, a 5% TCS is applied. Beyond this, a 20% TCS is levied for other purposes.

The adjustment of TCS rates was delayed from July 1 to October 1 due to concerns raised by banks about the readiness of their reporting systems to implement varying TCS levies for different categories.

It's important to note that outbound remittances under the LRS have seen a significant increase. In FY22, they surged by 55% YoY to $19.61 billion, and in FY23, they further grew by 22% YoY to $24 billion. Among these expenses, overseas travel expenses constituted a major portion.

Source: Media Reports