[Analysis] Revamping International Credit Card Spend during Foreign Travel

Introduction

The Indian government has recently implemented significant changes concerning the usage of international credit cards (ICCs) for individuals travelling abroad. Previously, travellers enjoyed an exemption that allowed unrestricted spending on ICCs to cover their expenses overseas.

However, a recent amendment has brought ICC transactions under the Liberalised Remittance Scheme (LRS) purview introducing new limitations and requirements, which enable the higher levy of TCS, as announced in the Budget for 2022-23, from July 1. This article delves into the implications of this amendment on individuals, tax implications, implications on the credit card industry, and various sectors associated with foreign travel. Foreign Exchange Management Act (FEMA).

1. Shifting Landscape of International Credit Card Usage

Until the recent amendment, Indian travellers benefited from the ease and flexibility of using ICCs without restrictions while travelling abroad. The exemption provided a seamless experience, allowing individuals to utilize their credit cards for various purposes, including accommodation, dining, shopping, and other expenses.

However, the new regulations now bring ICC transactions within the ambit of Rule 5 of the Current Account Rules, 2000, signalling a significant shift in the landscape of international credit card usage.

2. Revisiting Rule 7 and its omission

2.1. Provisions pre-omission

Earlier, Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 provides 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.”

Whereas Rule 5 read with Schedule III of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 prescribes that Individuals can avail of foreign exchange facility for the specified purposes within the limit of USD 2,50,000 only. Any additional remittance in excess of the said limit for the following purposes shall require prior approval of the Reserve Bank of India.

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