Finance Ministry releases FAQ clarifying TCS on LRS – PART 2

This is the continuation of the Frequently Asked Questions (FAQs) released by the Ministry of Finance regarding the Tax Collection at Source on Liberalised Remittance Scheme (LRS) consequent to the amendment of the Foreign Exchange Management (Current Account)Transaction Rules. The ministry's FAQs are divided into two sections. The Tax Collection at Source on LRS is explained in Part A, while the Liberalised Remittance Scheme is explained in detail in Part B. To understand the full impact of the Foreign Exchange Management (Current Account) Transaction Rules amendment, readers must read both. The Central Government amended the LRS in conjunction with the Reserve Bank of India to include international credit card transactions. The amendment's result is that commencing on July 1st 2023, 20% TCS will be applied to certain transactions. PART B - Clarification on the Liberalised Remittance Scheme (LRS) The Ministry explained that Rule 7 of the Foreign Exchange Management (Current Account) Transaction Rules, 2000 was left out of the notification dated May 16, 2023. It effectively eliminates the exception for using a foreign credit card to pay for expenses incurred while travelling. Even before the LRS was implemented, Rule 5 of the Foreign Exchange Management (Current Account Transaction) Rules applied to all current account transactions made with an overseas credit card in India. Additionally, it was made clear that the notification from May 16, 2023, had no impact on how foreign credit cards were used by foreign nationals while they were in India. According to the Ministry, the use of international credit cards for payments made by a person towards meeting costs while that person is on a visit outside India is exempt from the LRS under Rule 7 of the Foreign Exchange Management (Current Account Transaction) Rules, 2000. The ministry clarified the need for notice and added that when visiting overseas, a person may conduct current account transactions using international debit cards, alternative means, or foreign credit cards. Debit card payments and other forms of payment have long been considered LRS. The notification was made in order to avoid treating debit cards and credit cards differently, to promote equity and uniformity in the treatment of foreign exchange withdrawal methods, to capture total LRS expenditures for responsible foreign exchange management, and to prevent exceeding LRS limits. In numerous communications to the government, the Reserve Bank of India emphasised the need to end this discriminatory treatment. The mode of foreign exchange covered under Foreign Exchange Management (Current Account Transaction) Rules included the drawal of foreign exchange from an authorised person and use of an International Credit Card, International Debit Card or ATM Card. All such drawals are eligible for the limit of $2,50,000 clarified by the Ministry. As per Rule 5 of the Foreign Exchange Management (Current Account Transaction) Rules, 2000, individuals can avail of a foreign exchange facility for the following purposes, as detailed in Schedule III of the Rules, within the LRS limit of USD 2,50,000 on a financial year basis. Prior approval of the Reserve Bank would be required for remittances exceeding the specified limits. Private visits to any country (except Nepal and Bhutan)Gift or donationGoing abroad for employmentEmigrationMaintenance of close relatives abroadTravel for business, attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as an attendant to a patient going abroad for medical treatment/ check-up.Expenses in connection with medical treatment abroadStudies abroadAny other current account transaction The expenses of employees travelling on business are not covered by the LRS. Such expenses shall be classified as residual current account transactions outside LRS and may be approved by the AD without any restrictions, subject to the AD confirming the bona fide of the transaction. This applies when an employee is deputed by an entity for any of these and the expenses are covered by the latter. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

Finance Ministry releases FAQ clarifying TCS on LRS – PART 2

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