Government Reinstates Rule 7 to FEM (CAT) Rules, 2000
The Indian
government has made changes to the Foreign Exchange Management (Current Account
Transactions) Rules, 2000, by reinstating Rule 7. This rule excludes the usage
of International Credit Cards (ICC) abroad from the purview of the Liberalized
Remittance Scheme (LRS). The reinstatement came into effect on May 16, 2023.
Background of the Changes
Previously, on May
16, 2023, the government issued a notification (No. G.S.R 369(E)) that omitted
Rule 7 of the CAT rules, 2000. This omission included the use of ICC abroad
under the LRS.
However, the
government later realized that banks were facing difficulties in upgrading
their systems to comply with the new norms. In light of this, the
implementation of the omission notification was postponed.
Reinstatement of Rule 7
Considering the
challenges faced by banks, the government has now reinstated Rule 7. This means
that the usage of ICC abroad for making payments towards expenses during an
overseas visit is not included in the LRS limit. The reinstatement of Rule 7
came into effect on May 16, 2023.
Uniformity and Prevention of LRS Limits
Bypass
The government's
decision to omit Rule 7 initially was aimed at bringing uniformity to the
treatment of International Credit Card (ICC) and International Debit Card (IDC)
transactions under the LRS. With the omission of Rule 7, the limit for ICC
transactions during foreign travel would have been capped at USD 2,50,000,
similar to IDC transactions.
However, in order
to provide sufficient time for banks and card networks to implement the
necessary IT-based solutions, the government postponed the applicability of the
amended norms through a press release dated June 28, 2023. As a result, the
government reinstated Rule 7 through Notification No. G.S.R. 472(E) on June 30,
2023.
Clarification on Foreign Transactions
Using ICC
It is important to
note that when a foreign transaction is made using an international credit card
while being in India, it is treated as a remittance under the Liberalized
Remittance Scheme (LRS). Therefore, such transactions are subject to Tax
Collected at Source (TCS).
These changes aim
to streamline the regulations governing the usage of International Credit Cards
(ICC) abroad and ensure clarity for individuals and banks involved in foreign
transactions.
