MUMBAI: Many well-heeled persons have perfected a mechanism to use corporate credit cards for personal expenses during overseas travels.
Amid fears that such overseas spends could soon come under the annual limit on foreign remittance by an individual, these high net worth customers believe that they would avoid breaching the limit by swiping the corporate card to shop and carry out other personal expenditures during a business trip.
A resident individual can spend up to $250,000 a year as part of the liberalised remittance scheme (LRS) to buy stocks and properties overseas as well as carry out some current account transactions. While the move to bring international credit card spends under LRS has been kept in abeyance since a year, bankers expect the government to implement the proposal any time this year.
The rule, as and when it’s put in place, would understandably apply for overseas spends on regular cards and not expenditures made on corporate cards which are issued to companies for the use of senior employees during overseas business tours. A regular credit card is mapped to the permanent account number of the individual card holder while the corporate card is not linked to the PAN of the employee using it.
However, there is nothing that restricts a person from using the corporate card for personal expenses while travelling abroad — and it’s impossible for any bank to segregate this.
In many mid-level and closely held companies as well as family businesses, senior persons in the organisations are freely using international corporate cards for personal expenses and subsequently paying back the company locally in rupees. They are hoping such spends would never be caught in the LRS basket when the rule is implemented.
With the government tightening the regulations to restrict the rich from splurging money abroad, it could only be a matter of time before expenses with international cards are clubbed with LRS investments and spends. However, even then it would be virtually impossible in many cases to spot the personal expenses.
Banks, which don’t have a way to track this, want to put the onus on the corporates to whom the cards have been issued to segregate the personal from the business expenses.
Classifying the card spend as an LRS item, applying the proposed tax collected at source (TCS) on credit card spends of more than ₹7 lakh, and a revaluation of the regulatory clamp down on the use of commercial cards for B2B payments since February (after it was found that vendors not registered as merchants were receiving payments) are some of the current issues in the corporate card business.
Bankers expect a few of these to come up for discussion with the Reserve Bank of India (RBI) calling a meeting with select card issuing banks this week. “I am not aware of the detailed agenda, but I believe RBI may discuss possible safeguards in the use of commercial cards, and also review the February decision. We don’t know when the LRS-TCS notification will be issued, but some discussions on this cannot be ruled out,” said a banker.
“After the withdrawal of a May 16, 2023 notification there is status quo on use of international credit cards by any person for meeting expenses on a visit outside India. As per Rule 5 read with Rule 7 of the extant Foreign Exchange Management (Current Account) Rules, 2000, the use of International Credit Card for making payment by a person towards meeting expenses while such person is on a visit outside India is outside the purview of limit prescribed under LRS.
So, if there is contemplation of notification becoming effective without any modifications in near future, it would mean that usage of international credit card for meeting expenses while on a visit outside India by individual would fall within LRS limits and accordingly, consequential TCS provisions will apply if the expenses in foreign exchange exceeds `7 lakh per annum. However, this would not impact expenses incurred for the purpose of business travel,” said Siddharth Banwat, Partner at the CA firm S Banwat & Associates LLP. Banks are putting all obligations relating to usage of corporate credit cards in violation of the provisions of FEMA on the users (who in many cases have to give an undertaking that it would be used only to meet official and business expenses.) “So, it will be onerous on the part of companies obtaining corporate credit cards and providing it to the senior management to ensure usage within applicable FEMA provisions,” said Banwat.
Source: The Economic Times
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