Implement policy changes after dialogue with stakeholders

The government has done well to end the confusion about changes in the system of tax collection at source (TCS) on payments under the liberalized remittance scheme (LRS) pertaining to expenses incurred overseas. The changes, which were scheduled to take effect from July 1, were announced in March. Among other things, credit card payments were brought under the LRS. The Budget 2023-24 increased the TCS rate from 5 per cent to 20 per cent for remittance under LRS as also purchase of foreign tour packages. It also removed the threshold of Rs seen lakh for triggering TCS on LRS. A good step has been that remittances for education and medical purposes have been exempted. Evidently, much thought didn’t go into the execution of these changes; unsurprisingly, banks and many individuals raised issues about the operational problems during implementation. Thankfully, the government responded positively, and has now decided that there will be no change in the rate of TCS whatsoever under LRS and for overseas travel packages, regardless of the mode of payment, for amounts up to Rs seven lakh per individual per annum. The government has given more time for implementation of the revised TCS rates and for inclusion of credit card payments in LRS.

After discussions with various stakeholders, and taking their suggestions into account, the government decided to give adequate time to banks and card networks to put in place the requisite IT-based solutions. Now transactions through international credit cards, while being overseas, would not be counted as LRS and hence would not be subject to TCS. The rise in TCS rates will now be applicable from October 1. As things stand, if a person spends money outside India using a credit card, then that would not attract TCS. However, if the same person uses a credit card in India for an overseas transaction, it would fall under the LRR and thus attract TCS in case the transaction is more than Rs seven lakh. While the Finance Ministry should be lauded for withdrawing the provisions that many people found problematic, it would have been better to not have come up with such provisions in the first place. That can happen when there is a continuous dialogue with the stakeholders, That didn’t happen in this case.

After the controversial provisions were announced in May, the Indian Association of Tour Operators (IATO) raised the possibility of a loophole that could have benefited tour operators based outside India. The tour operator body also pleaded with the government for a level-playing field between domestic and foreign tour operators. Then there was also the issue of banks to be burdened with a lot of tracking work. For instance, if someone has more than one card, the banks involved have to find how much spending has been made on each card. Had the Finance Ministry mandarins consulted the people connected with the earlier decision on TCS—for instance, tour operators and bankers—they would have understood the real picture, implying that there would have been no rollback. We reiterate that the need of the hour is regular communication between government functionaries and industry representatives.