What you should know about new rules for using credit card abroad

The Union finance ministry on Thursday issued a clarification on the changes in FEMA rules which brings overseas international credit card spending under the RBI’s liberalised remittance scheme (LRS). Here’s how it affects you.

1. What is the notification dated 16th May, 2023, amending the FEM (CAT) Rules, 2000?

The notification dated 16th May 2023 omits Rule 7 of the FEM(CAT) Rules, 2000.

In effect, it removes the exemption given to the use of international credit cards for meeting his/her expenses by a person when he is abroad.

Even earlier, all current account transactions undertaken on international credit cards in India were subject to Rule 5 of the FEM(CAT) Rules and covered under Liberalised Remittance Scheme (LRS).

The notification dated 16th May 2023 does not effect any changes in the use of international credit cards by residents while in India.

2. What is Rule 7 of FEM(CAT) Rules, 2000?

Rule 7 of the FEM(CAT) Rules, 2000 exempted the use of international credit cards from the LRS for payments by a person towards meeting expenses while such a person is on a visit outside India.

3. What was the need for the notification?

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.

Due to the exemption under erstwhile Rule 7, 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 USD 2,50,000.

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 expenditures under LRS for prudent foreign exchange management and to prevent by-passing of LRS limits.

RBI had written to the government on more than one occasion, pointing to the need to remove this differential treatment.

4. What modes of expenditure of foreign exchange are covered under FEM(CAT) Rules, 2000?

It includes the drawal of foreign exchange from an authorised person and use of an international credit card, international debit card or ATM card.

All such drawals for the purposes specified in Schedule III are eligible for the limit of US $2,50,000.

5. What are the purposes under FEM (CAT) Rules, 2000, under which a resident individual can avail of a foreign exchange facility?

As per Rule 5 of the FEM (CAT) Rules, 2000, Individuals can avail of a foreign exchange facility for the following purposes, as detailed in Schedule III of the Rules, within the LRS limit of USD 2,50,000 on a financial year basis.

Prior approval of the Reserve Bank would be required for remittances exceeding the specified limits.

i. Private visits to any country (except Nepal and Bhutan)
ii. Gift or donation
iii. Going abroad for employment
iv. Emigration
v. Maintenance of close relatives abroad
vi. Travel for business, attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as an attendant to a patient going abroad for medical treatment/ check-up
vii. Expenses in connection with medical treatment abroad
viii. Studies abroad
ix. Any other current account transaction

The Master Direction of RBI on LRS, available at may be referred to. (external link)

6. Does LRS cover business visits of employees?

No. When an employee is being deputed by an entity for any of the above, and the expenses are borne by the latter, such expenses shall be treated as residual current account transactions outside LRS and may be permitted by the AD without any limit, subject to verifying the bona fide of the transaction.

7. What is Liberalised Remittance Scheme (LRS)?

Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April-March) for any permissible current or capital account transaction or a combination of both.

Further, resident individuals can avail of foreign exchange facility for the purposes mentioned in Para 1 of Schedule III of FEM (CAT) Rules 2000 within the limit of USD 2,50,000 only.

The scheme is not available to corporates, partnership firms, HUF, Trusts etc.

Under the LRS, in the financial year 2021-22, a total of USD 19.61 billion was remitted, rising from USD 12.68 billion in 2020-21.

In 2022-23, it rose to more than USD 24.0 billion, of which overseas travel accounted for more than half.

8. What is a current account transaction?

As per FEMA Act, 1999, a “current account transaction” means a transaction other than a capital account transaction and without prejudice to the generality of the foregoing, such transaction includes,

(i) payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business,
(ii) payments due as interest on loans and as net income from investments,
(iii) remittances for living expenses of parents, spouse and children residing abroad, and
(iv) expenses in connection with foreign travel, education and medical care of parents, spouse and children.

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