Your credit card usage abroad will now be taxed
Until now, a resident Indian’s overseas use of credit cards during foreign travel was excluded from the $250,000 cap by a provision in the Foreign Exchange Management (Current Account Transactions) Rules, 2000
PremiumNew Delhi: The finance ministry has included use of credit card abroad by an Indian resident within the $250,000 limit that an individual is allowed to remit abroad in a year under the liberalised remittance scheme (LRS), showed an official order.
Under this scheme, the Reserve Bank of India allows residents to spend funds abroad up to the specified ceiling for investment and expenditure, including travel, education, medical treatment and buying securities and physical assets.
Until now, a resident Indian’s overseas use of credit cards during foreign travel was excluded from the $250,000 cap by a provision in the Foreign Exchange Management (Current Account Transactions) Rules, 2000. An amendment to the rule brought out by the finance ministry late on Tuesday showed that this exclusion has been dropped.
The rule change means that international credit card transactions are also considered for determining this limit under the LRS scheme, explained Nischal S. Arora, partner, Regulatory at business advisory firm Nangia Andersen India. Individuals require the RBI’s prior permission to make any remittance above this threshold.
The move could impact spending by high networth individuals during foreign visits as the RBI’s nod is required for breaching the limit. The approval requirement will ensure that details of such overseas spending is reported to the authorities. The government has been sharpening its data gathering mechanism as part of efforts to improve oversight of transactions.
The $250,000 cap on LRS serves to conserve foreign exchange and helps to prevent flight of capital. in addition to regulating foreign investment by individuals, it also aids efforts to check money laundering. The cap also serves to encourage domestic investments and ensure macro-economic stability.
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