Be careful if you spend abroad with credit card, RBI issued this new rule

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RBI Liberalized Remittance Scheme: Spending in foreign currency through international credit cards is now covered under the LRS (Liberalized Remittance Scheme) of the banking sector regulator Reserve Bank of India. Under this, any resident can spend a maximum of $ 2.50 lakh abroad annually. But spending more than this amount in the form of foreign exchange requires approval from the RBI.

Issuing the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023, the Finance Ministry has said that spending abroad through international credit cards is also included in the LRS (Liberalized Remittance Scheme). Earlier, expenses incurred abroad from international credit cards were not included in LRS.

The Ministry of Finance has issued this notification after consultation with RBI and has omitted section 7 of the Foreign Exchange Management Rules, 2000. Due to this, payments made abroad through international credit cards have also come under the ambit of LRS. Introduced for 2023-24 earlier this year Budget The rate of TCS was increased from 5% to 20%. The new tax rates are going to be applicable from 1 July 2023. Under this, this rule will be applicable on overseas tour packages or other expenses under LRS except for education and medical expenses.

After the implementation of this rule, RBI’s monitoring will increase on international credit cards during foreign travel. Also, it will not be easy to avoid Tax Collection at Source (TCS) by paying abroad through credit cards. Along with this, the use of international credit cards while traveling abroad will also be strictly enforced. And as soon as someone spends more than 2.50 lakh dollars, TCS has to be paid on it.

Experts say that pre-approval is required for making payments abroad through international credit cards only if the prescribed financial limit is exceeded. We will have to see how the industry takes to these changes.