Change in rules for spending money with credit-debit cards New rules have been implemented by the Ministry of Finance

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Credit-Debit Card New Rule: The Finance Ministry said the FEMA Act will be amended to bring credit card spending abroad under the LRS scheme and bring uniformity in the tax aspects of debit and credit card remittances. Through the Foreign Exchange Management (FEMA) Amendment Rules, 2023, spending abroad through credit cards has been included in the Reserve Bank of India (RBI) LRS scheme, the finance ministry said in a statement on Thursday.

The new rates will be effective from July 1
which will enable ‘Tax Collection at Source’ (TCS) on amounts spent abroad at applicable rates. If the person paying TCS is a taxpayer, he can claim credit or set-off against his income tax or advance tax liabilities, the ministry said. In this year’s budget, TCS has been levied on foreign tour packages and remittances abroad under LRS at the rate of 10 per cent. 5 to percent. A proposal to increase it to 20 has been sent. The new tax rates will be effective from July 1.

Amendments to the FEMA Act
In this regard, the ministry issued a notification on Tuesday informing about the amendments to the FEMA Act. After inclusion of LRS in this notification, any remittance of foreign exchange exceeding Rs 2.5 lakh will require RBI’s approval. It may be mentioned here that prior to the coming into force of this notification, international credit card payments for expenses incurred during foreign travel were not eligible for LRS.

Omission of Section 7 In this notification issued after consultation with RBI, the Ministry of Finance has omitted Section 7 of the FEMA Act, 2000. Due to this, henceforth payments made abroad through international credit cards will also come under the purview of LRS.

In addition, the Ministry has tried to clarify the situation by issuing a list of questions and their answers related to this change. It added that debit card payments were already covered under LRS but spending abroad through credit cards was not covered under this limit. Due to this, many people are exceeding the LRS limit, the ministry said.

RBI has said in a letter to the government that
Information received from foreign remittance companies revealed that the current LRS limit of Rs. International credit cards are being issued with a spending authorization of more than 2.50 lakhs. According to the ministry, the RBI has written to the government several times to do away with separate verification of foreign debit and credit payments.