About new TCS on LRS Transactions

During the Budget presentation, the Government has proposed 20% TCS on Outward Remittances under LRS. This is a steep increase from the current level of TCS, where there was a 5% TCS for other than Tour Cost remittances, after a threshold limit of Rs. 700000/-. For tour cost remittances the TCS would start from USD 1.

The Credit card spends were never part of LRS. This was a loop hole of the system, as, all other Foreign Exchange availment was coming under LRS, this was not coming under LRS. and Accordingly there was no TCS on this. Even from AML perspective, this was a big loop hole, as any third party payment was acceptable for settlement towards Credit Card while a normal currency and prepaid card has a RBI rule that payment has to come from the purchaser account only making the tracking easy in case of abuse.

There was representation about this anomaly and the Government did the right thing by bringing credit card spending under LRS. This was the right move by the Government and RBi.

However, Immediately, next day of bringing this Credit Card under LRS, the Government gave a new concession for both Debit and Credit card by exempting the spend up to Rs. 700000/- on these cards under LRS. The reason given for this was that these are small value transaction and LRS reporting is a cumbersome procedure. The same concession was not extended to prepaid card and Foreign currency for similar value, though same should have been applicable in terms value and procedure. Prepaid card and Foreign currency are the normal instrument used by common man for Foreign travel.

This puts the common middle class people who may avail a small amount of foreign currency for going for family Trips, or labourers going for Employment, the retired people going outside the country for visiting their children, Mothers taking care of Pregnant daughters into a highly disadvantageous position. They basically carry small amount in currency for their initial expenses.

Now by exempting Credit Card spend up to Rs 7 lakhs from LRS, the Governments has opened up the loop holes for the unscrupulous elements to benefit, where as a common man is charged a huge amount as TCS.

A rich can have multiple credit cards from multiple banks. As there is going to be no reporting under LRS for spend up to Rs 7 lakhs, there will be no information sharing between the banks. Money can be remitted up to rs 7 lakhs multiplied by as many cards cards the person is holding. That can be huge amount.

If normal AD-2/FFMC's are reporting each and every sale of Foreign Exchange under LRS to the authorities with the PAN number why should the Credit card companies are given this benefit? What is the fault of that common man buying a small amount of USD 1000 from an exchange company, that he has to pay 20 percent TCS, ie, for a USD of Rs 80 he has pay Rs 16 to Government and wait for 1 year, file the return and claim refund. Many middle class people, as written above, may simply have a PAN and may not be even coming under the bracket of filing income tax. They may never file too. Thus lose 20 percent of their hard earned money.

Further, while Credit Card, which is generally rich man's instrument, is exempted for reporting under LRS, the same concession is not given to Pre paid forex card. Prepaid forex cards are generally purchased by common middle class people, not having enough clout to get credit card. Here the amount is paid in advance for the purchase as against credit card where amount is paid later. The purchase of Forex Prepaid card comes under LRS reporting and hence now subject to 20 percent TCS. That means, when a person is paying in advance for Forex, he has not only pay to Card issuer the value but also 20 percent to Government. If you are rich and credit worthy and have a luxury of credit card, no need to pay 20 percent to government.

While in prepaid card ( or currency) the customer knows about the exchange margin and charges in advance, in case of credit card there is no such sharing of information. This will lead to exploitation by these large credit card issuers as people do not have any choice because of regulatory arbitration created by the government.

It is irony that if a middle class person to buy Foreign Currency, pays money from the account here in India by a Ru pay card, NEFT, UPI, Cheque or small amount in cash then he needs to pay TCS of 20 percent and then GST to Government. Same person if he uses the Visa/Mastercard card and draws cash from an ATM then neither pay GST nor TCS. These companies are having regulatory advantage as against Indian businesses.

Clearly with the exemption given on LRS reporting to Credit Cards, there no level playing field between the Rich and Poor as there is no level playing field with the instrument used by the Rich and the Poor.

The only option for Common middle class people is going to be illegal black market. The official market for foreign currency will die its natural death because of the anomaly created by the government. The unused Foreign currency, the currency coming in from foreign traveler's, NRI's, instead of getting into official market will go to the illegal black market based on the premium available there. The common middle class people will have no choice but to go to this market to buy foreign currency. Government too will lose on GST and TCS. The people are currently paying GST on all their purchases & surrenders happening through official market.

A business which was happening with all KYC norms is going to driven into the black illegal market unless this decision of favouring the big credit card lobby of rich people is given to all the people using all the instruments of forex uniformly.

Arun Kumar Viswanadhula
Best Deal Forex Private Limited
15-31-2M-16/6, Flat No 6, Phase III, JNTU Road, Kukatpally Housing Board, Hyderabad, Telangana 500085
Tel +91 40 40123967
+91 9346758273

We are Authorised Money Changer licences by Reserve Bank of India

This release was published on openPR.