People are concerned that foreign trips and credit card transactions abroad will cost more
The Finance Ministry has published an FAQ on its announcement that international credit card payments will come under the RBI's liberalised remittance scheme, or LRS. This means any remittance over $2.5 lakh or its equivalent in a foreign currency will need the Reserve Bank of India's (RBI) approval.
The Finance Ministry's frequently asked questions (FAQs) attempts to clear queries of people who are concerned about new charges, or tax collection at source (TCS).
The Finance Ministry said TCS is applicable only to remittances covered under the LRS.
The main impact will only be on investment in assets such as real estate, bonds and stocks outside India by high net worth people using their credit cards; tour and travel packages, and expensive gifts to non-residents.
What is the LRS?
Under the LRS, everyone including minors can remit up to $2.5 lakh in a financial year. The scheme is not available to companies, partnerships, Hindu Undivided Family, trusts, etc.
People are concerned that foreign trips and credit card transactions abroad will cost more.
However, the LRS rules will mostly affect high net worth people who spend huge sums in investments using their credit cards and those who buy very expensive gifts abroad.
Why did TCS rates increase?
TCS is not a final tax as people - if they are also taxpayers - can claim credit for the TCS as tax payment against their regular income and adjust it against advance tax payment.
The Finance Ministry said they have noticed that payments under the LRS were disproportionately high when compared to disclosed incomes, which indicated tax evasion and money laundering.
What is the impact on travel and incidental expenses related to education and medical treatment?
The Finance Ministry said for TCS on remittance for travel and incidental expenses related to education and medical treatment, the TCS rates as application to remittances for education and medical treatment will apply. There is no changes in medical and education expenses, the Finance Ministry said.