Government tightens rules on global credit card transactions by Indian travellers abroad, LRS comes into play

In a move that could weigh on personal expenses of wealthy Indians on foreign trips, including for gifts, the government has ended a key relaxation on the use of international credit cards (ICCs) by residents touring abroad.

Such transactions would now be included in the computation of the limit of $2,50,000 under the liberalized remittance scheme (LRS) per person per year, beyond which the central bank's approval would be required.

The department of economic affairs has now scrapped the Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, under which such an exemption was granted earlier.


The change comes into effect immediately.

Nischal S Arora, partner at Nangia Andersen India, said the now-omitted Rule 7 was introduced almost 20 years ago as a liberalisation measure.

"Thus, the use of ICC by residents on a visit outside India or even for international purchases on the internet were hitherto not supposed to be included while computing the overall LRS limit of $250,000 per person per financial year. The same now having been omitted makes sure that ICC transactions are also considered for the purposes of determining the LRS limit," Arora said.

Jyoti Prakash Gadia, managing director at consultancy firm Resurgent India, said the rule change could have "far-reaching" consequences.

"This implies that the foreign exchange spending on personal transactions of expenses and gifts, etc will be subject to a ceiling of $2,50,000," he added.

The move will also discourage exorbitant personal spending by high net-worth individuals when they go abroad and serve to manage foreign exchange outflows better, experts said.