The RBI’s liberalised remittance scheme (LRS) has been seeing a bit of a drama of late. First, the government announced that it was bringing credit card spending under the ambit of the LRS. It also imposed a 20% tax collected at source (TCS) on foreign currency payments made through credit cards.
A flurry of social media posts, some from the government’s most ardent and vocal fans, said this was a flawed move that would make foreign travel more expensive and increase working-capital needs despite the provision to claim refunds.
Infosys co-founder Mohandas Pai wrote in an opinion piece that “the TCS of 20% on credit card payments for overseas travel is an instance where citizens are put to greater discomfort, higher compliance costs and unnecessary harassment because the I-T department believes that it does not have the tool to find out if taxes are being evaded. The simple solution is that any citizen who has filed tax returns for three years and has a PAN card should not be subject to any kind of TCS. Also, there can be a TCS of say 2% to ensure traceability, but why 20%”
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