Worries over the “galloping” payments under the Liberalised Remittance Scheme (LRS) and the rising overseas use of high-value credit cards with limits higher than $2,50,000 are factors behind the Centre’s move to bring credit cards under the LRS ambit with 20 per cent tax collection at source (TCS). Debit cards were already covered under LRS.

Outward LRS remittances have more than doubled to $27.1 billion in the last two years and the Centre is uncomfortable with this, especially because it believes, with strong reasons, that the actual figure could be considerably higher as credit cards were out of the LRS limits. The feeling is that the rising LRS outgo can have macro-economic consequences and needed to be staunched.

According to a top source, the Centre has identified many cases of taxpayers whose LRS payments are much higher than their declared income. There are those such as small businessmen and traders making multiple overseas visits in the same year using credit cards for their expenses. These cards often have credit limits higher than the LRS limits. It is this category of taxpayers that was the Centre’s target when it decided to bring credit cards under TCS and not the middle-class or salaried taxpayers, the source clarified. In a damage control exercise, the Centre announced on Friday evening that credit card payments of up to ₹7 lakh will not be covered under the LRS.

It is clear that the Centre aims to make foreign travel for leisure dearer because this category, at a little over $13 billion in 2022-23, accounts for half of all LRS outward remittances — it was just a quarter of the latter in 2020-21. Accepting that the move is harsh, the person quoted above said it was done with “strong reasons”.

“There will be a little friction but that is not something we’re unhappy about,” the source remarked, adding that the idea was as much to control outward remittances as to identify evaders.