Breaking Down the Revised Liberalised Remittance Scheme

The Finance Ministry recently announced a measure that could adversely impact wealthy Indians travelling abroad – it ended a key relaxation on the use of international credit cards (ICCs) overseas, stating that credit card payments will now come under the purview of the RBI’s Liberalised Remittance Scheme.

Know Liberalised Remittance Scheme
The Liberalised Remittance Scheme (LRS), allows individuals, including minors, to remit up to USD 250,000 in a financial year. However, the scheme is not available to companies, partnerships, Hindu Undivided Families, trusts, etc.  

Until now credit card payments did not count towards that USD 250,000 limit, but with the new policy changes, people are concerned about what new charges might be levied and how tax collection at source (TCS) would work.  

What Did Finance Ministry Say? 
To clear up all the potential questions people might have regarding the new policies on LRS and TCS, the Finance Ministry published a document which answers most of the primarily asked questions.  

In the document, the ministry stated that remittances which are covered under LRS are liable to TCS.  

According to the document, “For TCS on remittance for travel and incidental expenses related to education and medical treatment, the rates of TCS as applicable to remittances for education and medical treatment, respectively, shall apply.” Simply put, for any remittances in the purpose of education or medical treatment, there is no change as both the old and new rates remain the same. 

The major impact of this will only be high net worth individuals who use credit cards to purchase expensive gifts for non-residents, to invest in foreign assets such as real estate, stocks and bonds outside of India or for tour and travel packages. All of which now see a TCS of 20 per cent. 

Why did TCS Rates Increase?  

Justifying the increase in TCS rates, the finance ministry stated they noticed that payments under the LRS were disproportionately higher than disclosed incomes, which indicated either tax evasion or money laundering. The increase in TCS rates is a way of curtailing that problem. 

It should be noted, however, that TCS is not a final tax, meaning that if the TCS payee is a taxpayer, they can claim credit for the TCS as their tax payment against regular income and adjust it against advance tax payment.