The Government of India (GoI) recently announced a significant modification to the Liberalised Remittance Policy (LRS), which allows individuals to send money abroad for various purposes. The revised policy brings forth two potential benefits: increasing compliance of personal income tax (PIT) payments and saving on foreign exchange. Additionally, the byproduct of higher PIT collections is a reduction in the generation of black money. This article delves into the details of the LRS modification and its implications.
One of the key objectives of the LRS modification is to bolster compliance with personal income tax regulations, leading to an increase in tax revenue for the government. By imposing a 20% (presumptive) tax deduction at source on credit and debit card purchases of non-medical and non-educational expenses exceeding ₹7 lakh per person per year, the government aims to ensure that individuals report their foreign transactions accurately and pay their due taxes. This measure serves as a deterrence to tax evasion and encourages individuals to fulfill their tax obligations diligently.
By introducing this tax provision, the government hopes to narrow the tax gap and promote a culture of tax compliance among taxpayers. The increased tax revenue generated from these foreign transactions can contribute significantly to the country’s fiscal resources, enabling the government to fund developmental initiatives, public services, and infrastructure projects for the benefit of the nation.
The second benefit of the LRS modification is the potential savings on foreign exchange. The policy primarily targets credit and debit card purchases of foreign goods and services, and the tax is applicable only on non-medical and non-educational expenses exceeding ₹7 lakh per person per year. By discouraging excessive spending on non-essential items abroad, the government aims to curtail the outflow of foreign exchange.
The savings accrued from reduced foreign exchange expenditure can be significant, as they contribute to maintaining a favorable balance of payments position for the country. These savings can be channeled into strengthening the domestic economy, supporting domestic industries, and fostering economic growth.
While not the primary objective, curbing black money generation is considered a byproduct of the LRS modification. By ensuring higher compliance with tax regulations and reducing the scope for tax evasion on foreign transactions, the government indirectly addresses the issue of black money. The 20% presumptive tax deduction at source acts as a deterrent, discouraging individuals from engaging in illicit activities and encouraging them to declare their income and assets transparently.
The recent modification to the Liberalised Remittance Policy (LRS) announced by the Government of India (GoI) holds significant implications for tax compliance, foreign exchange savings, and the curbing of black money generation. The imposition of a 20% presumptive tax on credit and debit card purchases of non-medical and non-educational expenses exceeding ₹7 lakh per person per year aims to foster compliance and increase tax revenue. Simultaneously, it encourages responsible foreign expenditure, resulting in savings on foreign exchange. These changes contribute to the overall economic stability and development of the nation, aligning with the government’s agenda of promoting transparency, compliance, and sustainable growth.