Legal Case For Foreign Credit Card

The Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023, which included foreign credit card purchases for foreign currency under the Liberalised Remittance Scheme (LRS), were announced by the Ministry of Finance on May 16, 2023. Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 excluded the use of foreign credit cards abroad from the LRS before this amendment. The Reserve Bank of India (RBI) implemented the LRS on February 4, 2004, as a liberalization step to make it easier for residents to send money overseas for approved current or capital account transactions, or both.

To promote justice and uniformity in the treatment of foreign exchange drawal means, the amendment seeks to eliminate the various treatment that debit and credit cards receive. It also wants to stop LRS limit by-passing. The RBI had repeatedly written to the government, emphasizing the need to end this unfair treatment.

India’s Legal Case for International Credit Cards

The following considerations can be used to assess the legal case for international credit card use in India:

·   Residents for approved current or capital account transactions, or a combination of the two, under the LRS throughout the fiscal year (April–March), may send the LRS, or Liberalised Remittance Scheme, Up to USD 250,000 overseas. The modification essentially eliminates Rule 7’s exception by bringing FX spending through foreign credit cards within the LRS.

·   Differential Treatment between Debit and Credit Cards: To guarantee uniformity and equity in the treatment of means of drawing foreign exchange, the amendment seeks to eliminate the unequal treatment that debit cards and credit cards receive. Before the modification, some people exceeded the LRS restrictions because credit card expenses were not recorded under the designated LRS limit.

·   Data localization: In April 2018, India passed a law mandating that payment processors keep all records of transactions involving Indians on computers located in India. This regulation is a component of the discussion surrounding the idea of “data localization,” which attempts to improve control over data and maybe reduce the influence of multinational corporations.

·   Credit Card Usage Taxation: It has been suggested that the government’s plan to charge a 20% Tax Collected at Source (TCS) on credit card transactions deters individuals from making online payments. In a frequently asked questions (FAQs) document, the Union Finance Ministry defends the move by claiming that its goals are to stop LRS restrictions from being bypassed and to bring international credit cards up to level with debit cards.

Rule 7 of the Rules exempted payments paid for expenditures incurred by an Indian resident individual outside of India from Rule 5 of the Rules, meaning that such payments would not be subject to the LRS. Any transfer above USD 250,000 for the purposes listed in Rule 5 of the Rules requires prior clearance from the RBI (private visits to any country other than Nepal and Bhutan, gift or contribution, upkeep of close relatives abroad, etc.). As a consequence, some people exceeded the LRS limitations since credit card expenses made outside of India were not recorded within the LRS limit.

The LRS, the unequal treatment of credit and debit cards, data localization, and credit card transaction taxes are all factors in the legal dispute over the use of foreign credit cards in India. Recently, the Foreign Exchange Management (Current Account Transactions) Rules, 2023 were amended to include international credit cards under the LRS. The goal of this adjustment is to maintain equity and uniformity in the treatment of foreign exchange drawal options and to stop people from circumventing LRS restrictions.

To provide consistency and fairness in the treatment of foreign exchange drawal methods and to accurately record total expenditure under the LRS, the 2023 Amendment aims to do away with the disparate treatment of transactions done on debit cards and credit cards. Additionally, the 2023 Amendment will mandate that anybody using an international credit card for a transaction understand the limitations on such transactions as outlined in the Rule.

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