Credit Card Spends Overseas Exempted From LRS Limit, Finance Ministry Confirms

The finance ministry on Friday issued a notification stating that credit card spends made overseas will not be included in the Liberalised Remittance Scheme (LRS) limit, PTI reported.

The ministry announced in a statement that the revision to the Foreign Exchange Management (Current Account Transactions) Rules, 2000, will take effect retroactively on May 16. "...the use of an International Credit Card for making payment by a person towards meeting expenses while such person is on a visit outside India" will not be covered under LRS, the notification said while inserting Rule 7 in the FEM (CAT) Rules.

The amendment reverses the ministry's May 16 notification that left Rule 7 from the FEM (CAT) Rules, essentially bringing foreign exchange purchases made using foreign credit cards within the LRS. A person may send money abroad under the liberalised remittance scheme of the RBI up to a maximum of USD 2.50 lakh annually.

The RBI would need to approve any payments made in excess of this. Tax collection at source (TCS) is another need for LRS remittances. The LRS's compliance cost would have been exacerbated for banks if overseas credit card use had been included. The public expressed worries about the effects of the FEM (CAT) Rules amendment that took effect on May 16.

In a statement on June 28, the ministry had said that "to give adequate time to banks and card networks to put in place requisite IT-based solutions, the government has decided to postpone the implementation of its May 16, 2023, notification".

The ministry had stated that purchases made with international credit cards while travelling "would not be counted as LRS and thus, would not be subject to TCS."