Govt should consider junking TCS on LRS

The govt did a smart thing by not rushing through the implementation of the new LRS rules; perhaps it should do the smarter thing and scrap the changes entirely

The Union government’s decision, late on Wednesday, to suspend the tax on foreign credit card spends and defer the application of the higher tax rate on other remittances to October 1 (both were supposed to come into effect on July 1), citing practical and operational problems, is welcome. The new Foreign Exchange Management (Current Account Transactions) Rules, notified last month on May 16, deleted a section that exempted credit card payments from the liberalised remittance scheme (LRS). Thus, foreign remittances made through credit cards would have come under the LRS limit of $250,000 from July 1.

LRS was reformist, allowing Indians to spend abroad up to a specified ceiling. (HT PHOTO) (HT PHOTO)

Since the changes in the taxation of spends under were announced, experts have pointed to the operational difficulties these would entail. And that is apart the larger issue that the changes seemed to be a roundabout way of reducing the LRS limit from the current $250,000 a year; that it helps neither the short-term target of revenue mobilisation nor the medium-term one of convertibility; and that it goes against the spirit of this government’s “ease-of-living” philosophy.

The suspension and the deferral have addressed these issues, in part, but only temporarily. Experts have now pointed out that there are still several grey areas that need clarification. The government did a smart thing by not rushing through the implementation; perhaps it should do the smarter thing and scrap the changes altogether.