RBI LRS Scheme: After many criticisms, the Ministry of Finance has given clarification on spending abroad with credit and debit cards under the LRS scheme. It has been said by the Finance Ministry that there will be no tax on spending abroad through debit and credit cards up to Rs 7 lakh during the financial year.
The Finance Ministry said in its statement that debit and credit card payments up to Rs 700,000 will be kept out of the Liberalized Remittance Scheme (LRS) and TCS will not be charged on it from July 1. A few days ago, it was decided to bring the expenses incurred through international credit cards under the Liberalized Remittance Scheme. Under this, 20 percent TDS was imposed on the expenditure.
Tax exemption on studies and medical treatment abroad
The ministry’s move assumes significance as the Union Budget removed the Rs 700,000 limit for Tax Collection at Source (TCS) on foreign exchange purchases under LRS with effect from July 1, while raising the tax rate to 5 per cent, except on education, medical has been reduced to 20 per cent.
Changes will be released separately
The Finance Ministry said in its statement that it has been done regarding the ambiguity spread about the expenses incurred abroad from debit cards and credit cards. This has been excluded from LRS, hence no TCS. The ministry said necessary changes to the rules (Foreign Exchange Management, Current Account Transactions Rules, 2000) will be issued separately.
What’s the rule now
At present, online purchases of goods and services in foreign currency by individuals attract a TCS deduction of 5 per cent above a limit of Rs 700,000. If this payment is made in Indian Rupees, then no TCS charge will be taken on it. It was anyway outside TCS liability and will not come under TCS even after 1st July.
Welcome the verdict
Experts welcomed the decision to retain the Rs 700,000 limit for TCS on foreign exchange purchases after July 1. According to Exters, even international payments smaller than this could be subject to TCS and taxpayers could be seriously affected. Now this will not happen.
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