Banks prepare to bring international credit cards spends under liberalised remittance scheme: Report

An international holiday may get costlier now as the Reserve Bank of India has asked banks to be ready to include international credit card spends in the liberalised remittance scheme (LRS) by April 1. As per The Economic Times, many banks are preparing to integrate their systems with RBI’s for capturing the card spend information of individual customers during personal foreign tours as they believe that reissuing this specific notification may not go against the model code of conduct.

Centralised Payment System

NBBL which is a subsidiary of National Payments Corporation of India in its 2025 vision document has mentioned that the Reserve Bank of India wants all payment rails under a centralised payment system. Internet banking is the only exception and the banking regulator, wants this within the fold quickly, putting it on a par with processes such as the Immediate Payment Service (run by NPCI) as well as the Real Time Gross Settlement and National Electronic Fund Transfer systems (run by the RBI).

Also Read: Credit card forex payment: The what, why and how of 20% TCS on foreign transactions

The Economic Times quoted persons with knowledge of the matter and said that centralisation will allow standardisation of settlement cycles for merchants, visibility on data and proper customer grievance mechanisms.

“The RBI has had meetings with banks and industry officials. It does not want to delay the proposal though the industry thinks it could take longer,” a banker told The Economic Times.

Tax on international credit card

Transaction centralisation would bring any transaction via international credit card under the liberalised remittance scheme. This means the transactions of an individual through international credit cards while being overseas will be part of the annual cap of $250,000 that a resident can remit abroad under LRS for opening offshore bank accounts, investing in stocks, and buying properties.

Likewise, LRS spend beyond Rs 7 lakh would attract 20% tax collection at source (TCS) except for expenditures on account of education and medical treatment on which the tax is significantly lower. An individual will be eligible for a refund if her TCS exceeds total tax liability.

As per The Economic Times, the move is widely perceived as government's overall policy to discourage outflow of foreign exchange and curb large expenditures, which were outside the LRS limit through international credit cards. Banks, however, are awaiting certain clarifications as they are not sure on how to segregate between a personal spend and business expenditure; or, to distinguish between card use while abroad and online card spend from India for booking hotels or flights.

“It will be challenging to segregate spends unless separate credit cards are issued for corporate and personal use. In the era of ease of doing business, where the government’s aim is to encourage manufacturing in India and promote export of goods, a broader mindset is required in controlling foreign exchange outflow rather than restricting spending through credit cards,” Siddharth Banwat, CA and co-founder at Yuvyze Consulting LLP Told The Economic Times.

“Ideally, a separate limit should be created for overall foreign exchange spend through credit cards (over and above the consolidated limit of $250,000). Ultimately these credit cards are issued by Indian banks for international usages. From the income tax point of view as well, credit card spends are reported and therefore, there is no need to levy TCS at this stage by including credit card spending within LRS limits,” said Banwat.

In May 2023, a government notification removed, the differential treatment between credit cards and other modes of forex withdrawals under LRS. However the government decided to postpone the implementation of the notification as banks and card networks were not prepared