Payments made by using international credit cards (ICC) during overseas visits will not attract Tax Collected at Source (TCS), as per a notification issued by the finance ministry on Friday night.

Putting at rest the controversy over usage of ICC, the ministry amended the Foreign Exchange Management (Current Account Transactions) Rules, 2000, on Friday to exclude ICC from the purview of the Reserve Bank's Liberalised Remittance Scheme (LRS) which attracts TCS beyond a threshold at specified rates.

"...the use of ICC for making payment by a person towards meeting expenses while such person is on a visit outside India" will not be covered under LRS, the notification said while inserting Rule 7 in FEM (CAT) Rules.

The amendment will be effective retrospectively from May 16, the ministry said in a notification.

The amendment reverses a May 16 notification by the ministry which omitted Rule 7 from FEM (CAT) Rules, thereby effectively including forex spend through ICCs under LRS.

Under LRS, a resident can remit money abroad up to USD 250,000 per annum. Any remittance beyond this would require approval from the RBI.

Also, remittances under LRS are subject to TCS. Bringing ICC spends within LRS would have increased the compliance burden for banks.

Following the May 16 change in FEM (CAT) Rules, concerns were raised by the public over its impact.

In a statement on June 28, the ministry had said that "to give adequate time to banks and card networks to put in place requisite IT-based solutions, the government has decided to postpone the implementation of its May 16, 2023, notification".

Transactions through ICCs while "being overseas would not be counted as LRS and hence, would not be subject to TCS", the ministry had said.

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