The e-Gazette notification dated 16th May 2023 removed Rule 7 of the FEM(CAT) Rules, 2000.
Before the amendment, Rule 7 of the FEM(CAT) Rules 2000 exempted the use of credit cards from the LRS for payments by a person towards meeting expenses while such a person is on a visit outside India. But this has now been changed and international credit card expenditures made by Indians abroad would now come under the ambit of LRS. Moreover, 20% TCS would apply to certain transactions covered under the LRS rules.
Also Read: Why is ‘20% TCS’ on Credit Card trending?
Why the change?
Explaining the reason behind the removal of Rule 7 of GEM(CAT) Rules 2000, the Ministry said, “While on a visit abroad, a person could use international debit cards or other methods or international credit cards for undertaking current account transactions. Payments by debit cards etc. have been treated as LRS even earlier. Due to the exemption under erstwhile Rule 7, expenditures through credit cards were not accounted for under the specified LRS limit, which has led to some individuals exceeding the LRS limits.”
“Data collected from top money remitters under LRS reveals that international credit cards are being issued with limits in excess of the present LRS limit of US$2,50,000. The differential treatment between debit cards and credit cards needed to be removed in the interest of uniformity and equity in the treatment of modes of drawal of foreign exchange for capturing total expenditures under LRS for prudent foreign exchange management and to prevent by-passing of LRS limits,” it added.
Also Read: Credit Card payments on which 20% TCS will apply
The Finance Ministry also said that the RBI had written to the Government on more than one occasion, pointing to the need to remove the differential treatment between international debit cards and international credit cards used by Indians abroad.