In a move to streamline foreign exchange transactions, the Reserve Bank of India (RBI) has expanded the scope of its liberalized remittance scheme (LRS). Under the revised regulations, residents will be able to use international credit cards (ICCs) for making payments abroad without seeking prior authorization from the RBI. This development comes as a result of the Finance Ministry’s recent notification, which includes international credit card payments within the permissible limits of the LRS.

Expansion of the LRS:

The Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023, were introduced by the Finance Ministry on May 16 to incorporate international credit card payments into the LRS. Until now, the usage of ICCs for expenses incurred during foreign travel was not covered by the LRS limit. However, with the latest notification, the Finance Ministry, in consultation with the RBI, has omitted Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, effectively expanding the LRS to include foreign exchange spending through international credit cards.

Increased Tax Rates for LRS:

Coinciding with this regulatory change, the budget for 2023-24 introduced an increase in tax rates for certain LRS transactions. The Tax Collected at Source (TCS) rates for overseas tour packages and funds remitted under the LRS, excluding those for education and medical purposes, have been raised from the current 5% to 20%. This revision is set to come into effect on July 1, 2023, as reported by the Press Trust of India (PTI).

The inclusion of international credit card payments within the RBI’s liberalised remittance scheme (LRS) marks a significant step towards facilitating foreign exchange transactions for Indian residents. With the removal of restrictions on using ICCs for expenses incurred during travel outside India, individuals can now make payments abroad up to a maximum of $2.50 lakh per annum without seeking prior approval from the Reserve Bank. However, any remittances exceeding this threshold would require RBI authorization. Moreover, it’s important to note that the recent budget’s decision to increase the TCS rates on certain LRS transactions aims to generate additional revenue while encouraging responsible spending. These changes, combined with the continued growth of digital payments and global transactions, underline the evolving landscape of financial regulations in India.