Banks are struggling to track outward remittances for tax collected at source (TCS) ahead of the roll out of the revised Liberalised Remittances Scheme (LRS) from July 1 in the absence of any integrated system in place.

The government has increased the tax on foreign remittances to 20 per cent from July 1, as against 5 per cent earlier. However, spends of up to ₹7 lakh per financial year will be exempt from such tax.

The cap is applicable on outward remittances across different payment mechanisms and banks, including credit cards, which is making it difficult for banks to consolidate and track customer-wise transactions and the tax component, sources told businessline.

They added that currently the outward remittances data are only collected by the Reserve Bank of India and banks have to take it from the regulator. However, without consolidated and real time access to the information, tracking remittances is proving to be a challenge given that it also includes several small value transactions, thus also increasing the probability of error.

“There should be online, real-time information of all LRS remittances in a particular financial year which needs to be integrated with your payments systems. In case of banks, it is CBS, in case of credit card and other companies, it is their main operating system,” an industry expert said, adding that an integrated system is also crucial because currently the tracking is manual which is challenging given the volumes of transactions.

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A senior executive at a card issuer said that in addition to real time information access, banks are also working on developing their IT systems to develop a mechanism that self-detects remittances and the limits.

Credit card spend

Credit card spends are proving to be especially problematic given that most banks have separate verticals or subsidiaries for cards, and because spends are typically not settled on a real time basis.

“If a certain amount is settled and TCS is not deducted at the time of settlement, and the issuer realises at the time of the statement that the limit has exceeded, issuers will have to deduct tax from the residual limit of next month and it’s not necessary that the amount may be available in the card limits or accounts at all times,” another source said.

While travel and tour companies have asked for an extension, it is unlikely because banks and credit card issuers have already started deducting TCS so any pause will not be feasible. What banks and card issuers may then seek from the regulator is more time to ensure that the system is fool proof and that they not be penalised in the meantime for any discrepancies.

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