With travellers making use of the arbitrage between domestic and foreign tour operators by using the loophole of exclusion of credit cards under the Liberalised Remittances Scheme (LRS), the government and the Reserve Bank of India (RBI) decided to tweak the Foreign Exchange Management (FEM) rules to enable a level field for usage of debit and credit cards for international transactions. Outlining its reasons for the tweaks in rules for international credit card usage, the Finance Ministry Thursday cited instances where “LRS payments are disproportionately high when compared to the disclosed incomes”. Under the LRS scheme, residents are allowed to remit up to $250,000 (approximately Rs 2.06 crore) per year without prior approval from RBI. The government had already begun levying 5 per cent TCS on overseas remittances and for sale of overseas tour packages. “Because credit cards were excluded from LRS, foreign tour operators were having an edge over the domestic tour operators since the TCS would not reflect in the overall tour charges for an Indian resident and this loophole was giving undue advantage to foreign tour operators,” a government official said. The Finance Ministry in its clarification that the RBI had written to the government on “more than one occasion, pointing to the need to remove this differential treatment” between debit and credit cards. “While on a visit abroad, a person could use international debit cards or other methods or international credit cards for undertaking current account transactions. Payments by debit cards etc. have been treated as LRS even earlier. expenditures through credit cards were not accounted for under the specified LRS limit, which has led to some individuals exceeding the LRS limits. Data collected from top money remitters under LRS reveals that international credit cards are being issued with limits in excess of the present LRS limit of $2,50,000,” it said. Travel agents divided on move By Sukalp Sharma New Delhi: Domestic travel agents appear to be divided on the government’s decision to include overseas transactions on credit cards under the ambit of LRS and TCS. While some see the decision as directionally right in terms of aiding their competitiveness vis-a-vis international platforms, others believe it could lead to significant demand destruction and have a negative impact on the sector. Sources in the finance ministry had said the decision was taken after it received representations from the domestic industry. “As you know, 5 per cent TCS had been introduced earlier. Domestic travel agents had to collect this from customers as banks would seek compliance while making remittance to overseas suppliers. However, international ones make payments to overseas suppliers from their overseas locations and hence customers were not getting charged with 5% TCS when booking on overseas platforms as credit cards were also exempt from LRS rules,” said Mohit Kabra, Group CFO at MakeMyTrip. But there is a contrarian view as well. The head of a well-established Delhi-based travel agency, who did not wish to be identified, said that this decision could seriously harm the sector. “It is true that business was shifting to overseas players because of TCS and credit cards being exempt from LRS, but this decision could bring immense harm to the sector. Travel agents who sought such a move probably did not realise what they were asking for. This move is not consumer-friendly and could result in major demand destruction,” said the Delhi-based agent.
