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The Ministry of Finance on 16th May 2023 included the transactions done overseas through international credit cards under the Liberalized Remittance Scheme Limit (“LRS Limit”) by removing the exemption which was available to such transactions under Rule 7 of the Foreign Exchange Management (Current Account Transaction) Rules, 2000 (“CAT Rules”).
However, the Ministry of Finance in its further clarification on 19th May 2023 allowed small transactions i.e., upto Rs. 7 lakh per financial year using international debit or credit cards, which will be excluded from LSR Limits.
● The Ministry of Finance (Department of Economic Affairs) via notification G.S.R. 369(E) dated 16th May 2023 omited Rule 7 i.e., ‘Use of International Credit Card while outside India’ of the CAT Rules.
● Erstwhile Rule 7 was an exemption to the mandatory provision of Rule 5 i.e., ‘Prior Approval of Reserve Bank’ for drawing foreign exchange for a transaction included in Schedule III of CAT Rules, provided that the payment is not made out of funds held in Resident.
● Foreign Currency (RFC) Account of the remitter. Due to the exemption under Rule 7, overseas expenditures through international credit cards were not accounted for under the specified LRS Limit, which has led to some individuals exceeding the LRS Limits.
● Further the Ministry of Finance on 19th May 2023 through 'Clarification regarding applicability of Tax Collection at Source to small Debit/Credit Transactions under LRS’, stated that any payments by an individual using their international Debit or Credit cards upto Rs 7 lakh per financial year will be excluded from the LRS Limits and hence, will not attract any tax collected at source (TCS). The necessary changes to CAT Rules will be issued separately.
JC Key Takeaways:
The decision by the Ministry of Finance to omit Rule 7 from the CAT Rules has been a subject of debate and controversy. The Ministry of Finance has made it more difficult for individuals to engage in money laundering, tax evasion, or transferring funds out of the country without proper oversight and regulation.
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