The Finance Ministry has asked the Reserve Bank of India (RBI) to consider bringing credit card payments done during foreign tours under the central bank’s liberalised remittance scheme (LRS) so that such expenses do not escape the tax collection at source (TCS).
Moving the Finance Bill in the Lok Sabha on Friday (March 24), Finance Minister Nirmala Sitharaman said, “It has been represented that payments for foreign tours through a credit card are not being captured under the LRS and such payments escape TCS. The RBI is being requested to look into this with a view to bring credit card payments for foreign tours within the ambit of LRS and TCS thereon.”
According to the LRS, which was introduced in 2004, all resident individuals, including minors, are allowed to freely remit up to $250,000 per financial year. This is for any permissible current or capital account transaction or a combination of both. Initially, the scheme was introduced with a limit of $25,000, and was increased later.
The practice of collecting TCS on overseas tour packages and overseas remittances was introduced in the year 2020 primarily with the intention of ensuring that anyone remitting money overseas should be brought under the tax net.
In the past, the Indian travel agents through various association representations had requested the government to abolish the existing 5 per cent TCS, citing challenges the tax imposes to business prospects besides increasing compliance costs of local companies.
Overseas tours and overseas remittances have been bucketed together in this proposed hike that was announced in the Union Budget 2023 – although the purpose, nature of transaction and users are different. Incidentally, the proposed 20 per cent rate is the highest TCS rate under the Income Tax Act currently – for any nature of payment.