The finance ministry has shelved its plan to bring international credit card spending under the ambit of liberalised remittance scheme and charge tax collected at source
The government has also extended the date for higher TCS levy on foreign remittances under LRS to October 1 from July 1 earlier to give 'adequate' time to banks and card networks
The move is expected to provide a relief to startups, especially in the fintech sector which has been hit hard by the regulatory changes over the last year or so
The Centre on Wednesday (June 28) shelved its plan to bring international credit card spending under the ambit of liberalised remittance scheme and charge tax collected at source (TCS) on it.
Just two days ahead of the implementation of new norms, the finance ministry said international credit card spends will not be included in the LRS and, as such, will not attract tax collected at source (TCS).
Last month, the Centre brought overseas credit card spending under LRS, meaning all international credit card spending would attract a TCS of 20%.
This was following the Budget announcement of hiking TCS on foreign remittances under LRS to 20% from 5%. This was to come into effect from July 1.
However, the finance ministry has now deferred the implementation of the new norms to October 1. The deadline has been postponed to give ‘adequate’ time to banks and card networks to set up necessary IT solutions to implement the new rules, the ministry said in a statement.
“… the government has decided to postpone the implementation of its 16th May 2023 e-gazette notification. This would mean that transactions through international credit cards while being overseas would not be counted as LRS and hence would not be subject to TCS,” the statement said.
The news is expected to come as a relief for startups who had already begun transitioning to the new regime. The move is also expected to help fintech startups who feared that bringing international credit card spending under LRS would impact transaction volumes.
It is also expected to lessen compliance issues and related costs for fintech startups already reeling under the impact of the ongoing funding winter.
Earlier last month, the finance ministry amended Foreign Exchange Management Act (FEMA) which omitted Rule 7 of the FEMA (Current Account Transactions) Rules, 2000. It brought all such spends outside India under the LRS limit of $250K (INR 2 Cr).
While the move received criticism from startups, the government was reportedly concerned over international credit card spendings escaping the tax net and misuse of LRS.
The development comes at a time when many fintech startups have been hit by the regulatory changes over the last year or so. Earlier this week, the National Payments Corporation of India (NPCI) issued a diktat barring PPI issuers from offering UPI in a cobranding arrangement.
In June last year, the Reserve Bank of India (RBI) had also disallowed non-bank PPIs from loading credit lines.