The government on Friday issued a fresh clarification, saying it has decided that any payments by an individual using their international debit or credit cards up to ₹7 lakh per financial year will be excluded from the Liberalised Remittance Scheme (LRS) limit and hence, will not attract any TCS (tax collection at source).

The clarification by the Ministry of Finance comes after concerns were raised about the applicability of TCS to small transactions under the LRS scheme from July 1, 2023.

"Existing beneficial TCS treatment for education and health payments will also continue. The necessary changes to the Rules (Foreign Exchange Management (Current Account Transactions Rules), 2000) will be issued separately," the ministry tweeted.

This comes a day after the ministry justified 20% TCS levy, saying, "If the TCS is of a person who is not a taxpayer, then the 20% rate on such presumed income is not high."

On Tuesday, the government amended the Foreign Exchange Management (Current Account Transactions) Rules, 2000 by omitting Rule 7, which exempted international credit cards from the Liberalised Remittance Scheme (LRS). In her Budget speech earlier this year, Finance Minister Nirmala Sitharaman had said that 20% TCS will be applicable on remittances covered under the LRS scheme from July 1, 2023, except for education and medical purposes.

In a series of tweets on Thursday, the finance ministry clarified the recent amendment was made after several instances came to its notice where the LRS payments were disproportionately high when compared to the disclosed incomes.

The new rules were aimed to check big overseas spends by high net-worth individuals. The primary impact of this move will only be on investments made in assets such as real estate, bonds, and stocks outside India by high net-worth individuals (HNI) and tour packages or gifts to non-residents, the finance ministry clarified.

Payments via debit cards used to fall under the LRS even earlier. "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 expenditure under LRS for prudent forex management and to prevent by-passing of LRS limit," the ministry had said.

Industry experts, however, had raised concerns about the applicability of TCS. Online ticketing platform MakeMyTrip urged the government to put the onus of collecting TCS (tax collection at source) entirely on customers' card-issuing bank at the time of payment through the card.

Travel Agents Association of India president Jyoti Mayal said that tracking transactions that attract TCS will be a herculean task for banks. The travel and tourism industry is becoming a maze of tax collections and documentation, Mayal said, adding there is 'no ease of doing business'.

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