Renowned Chartered accountant from Nagpur, Tejinder Singh Rawal, called the government’s move to track international credit card spending a step backwards for the economy. “This step will give India a bad image among foreign investors”, opines Rawal.
The finance ministry on Thursday deleted Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, to pave the way for accounting as credit card spending outside India under the Liberalised Remittance Scheme (LRS). The LRS scheme allows a person to remit or spend up to $250,000 in one year without the Reserve Bank of India (RBI) permission, as per Rule 5 (CAT) Rules, 2000. “Tracking expenditure under LRS is an unnecessary move as we already have a robust mechanism because of Aadhar-PAN linkage”, explains Rawal.
In an earlier notification, the Finance ministry had raised the amount of Tax Collected at source for LRS transactions from 5% to a whopping 20%, starting July 21. “Such a massive deduction at source will also deter Indian investors from investing in foreign shares,” says Rawal.
Talking about the impact on international travel, Jayyendu Mewar, owner of Tej Tours in Nagpur, said, “This sudden increase in TCS will significantly increase the budgets for international travellers.” Mewar also clarified that the transaction of up to Rs. 7 Lakhs will not be taxed. The Finance Ministry gave the tax exemptions after the backlash. “Concerns have been raised about the applicability of Tax Collection at Source (TCS) to small transactions under the Liberalized Remittance Scheme (LRS) from July 1, 2023. To avoid any procedural ambiguity, it has been decided that any payments by an individual using their international Debit or Credit cards up to Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS,” the Finance Ministry had clarified.
On being asked about the motive of the move, Rawal explained that the move is basically to earn a profit from the transactions, as most people do not claim a refund. This means that a huge sum will be collected in the government exchequer.