Forex Card spends by Employees in International Business Travels to be outside LRS and TCS ambits

The finance ministry said on Thursday that foreign credit card spending by workers on business travels overseas will be excluded from the Reserve Bank of India’s liberalised remittance scheme (LRS) yearly limit of $250,000 provided such expenditures are met by their employers.

Because such expenditure falls beyond the LRS limit, it will not be subject to a 20% tax collected at source beginning July 1, as specified in the Finance Bill 2023.

The clarification came a day after the government updated the Foreign Exchange Management Act (FEMA) rules, putting foreign credit card purchases made outside of India within the LRS. As a result, such spending will be subject to a 20% TCS beginning July 1. Many firms expressed concern that it might jeopardise their leaders’ legitimate work trips abroad.

“When an employee is deputed by an entity for any of the above, and the expenses are borne by the latter, such expenses shall be treated as residual current account transactions outside LRS and may be permitted by the AD (authorised dealer) without any limit, subject to verifying the bona fide of the transaction,” the ministry now says in a FAQ.

However, the former exemption from the LRS limit for credit card purchases made by Indian visitors abroad for specified objectives, such as gifts, contributions, medical treatment, study expenditures, close relative upkeep, emigration, and employment, has been eliminated. The tourism sector responded angrily to the decision, calling it “ill-conceived” and “ill-timed.”

The Department of Economic Affairs, in a notification dated May 16, repealed Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, which had given such an exception.

Reason For Tighter LRS Rules

According to the government, payments made using debit cards by foreign travellers have already been included in the LRS. However, because of the exception under the now-omitted Rule 7, credit card purchases were not counted against the LRS limit. As a result, several people exceeded the LRS limitations.

The Reserve Bank of India has written to the government “on more than one occasion” urging it to end the discriminatory treatment, according to the ministry.

“Data collected from top money remitters under the LRS reveals that international credit cards with limits in excess of the current LRS limit of $250,000 are being issued,” it stated.

“The differential treatment between debit cards and credit cards needed to be removed in the interest of uniformity and equity in the treatment of modes of drawal of foreign exchange and for capturing total expenditures under LRS for prudent foreign exchange management and to prevent by-passing of LRS limits,” the ministry clarified.