Govt. Releases FAQs to Address Confusion Regarding the Inclusion of ICCs Under LRS
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- Last Updated on 20 May, 2023
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Clarifications (FAQs) on the Liberalised Remittance, dated 18.05.2023
The Government has released the Frequently Asked Questions (FAQs) to address the prevailing confusion surrounding the usage of International Credit Cards (ICCs) under the Liberalised Remittance Scheme.
Earlier, the Govt. vide Notification No. G.S.R 369(E) dated May 16, 2023 omitted Rule 7 of the Fem (Current Account Transactions) Rules, 2000. In effect, it removed the exemption given to the use of international credit cards for meeting his/her expenses by a person when he is abroad.
Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, provided that
“Nothing contained in rule 5 shall apply to the use of an International Credit Card for making payment by a person towards meeting expenses while such person is on a visit outside India.”
Rule 7 of the FEM (Current Account Transactions) Rules, 2000 specifically exempted the use of international credit cards from the LRS for payments by a person towards meeting expenses while such a person is on a visit outside India.
FAQ 1. What does Rule 5 of FEM (Current Account Transactions) Rules, 2000 say?
As per Rule 5 of Fem (Current Account Transactions) Rules, 2000, every drawal of foreign exchange for transactions included in Schedule III shall require the prior approval of RBI except where the payment is made out of funds held in Resident Foreign Currency (RFC) account of the remitter.
FAQ 2. What does Schedule III of FEM (Current Account Transactions) Rules, 2000 say?
Schedule III of Fem (Current Account Transactions) Rules, 2000, provides the list of the permissible transactions as well as the limit for which individuals can avail of foreign exchange facility.
As per Schedule III of Fem (Current Account Transactions) Rules, 2000, individuals can avail of foreign exchange facility within the limit of USD 2,50,000 only. Any additional remittance in excess of the said limit would require the prior approval of the RBI.
Clarification issued by the Ministry for inclusion of International Credit Cards under LRS
The Ministry of Finance has clarified that even earlier, all current account transactions undertaken on international credit cards in India were subject to Rule 5 of the FEM (CAT) Rules and covered under Liberalized Remittance Scheme (LRS).
The notification dated 16th May 2023 does not affect any changes in the use of international credit cards by residents while in India.
The Ministry, further clarified that 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 I.RS limits.
So, differential treatment was given for the ‘International Credit Card’ as compared to the ‘International Debit Card’ without any specific reason.
Therefore, the Ministry clarified that 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 and for capturing total expenditures under LRS for prudent foreign exchange management and to prevent bypassing of I.RS limits.
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