Business visit expenses by employer not covered in RBI's remittance scheme

The finance ministry on Thursday said expenses incurred by an employee on a business visit, when such expenses are borne by the employer, will not be covered under RBI's liberalised remittance scheme.

A clarification to this effect was provided in a set of FAQs issued by the finance ministry on the LRS (Liberalised Remittance Scheme).

"When an employee is being deputed by an entity for any of the above (business visit), and the expenses are borne by the latter, such expenses shall be treated as residual current account transactions outside LRS and may be permitted by the AD (authorised dealer) without any limit, subject to verifying the bona fide of the transaction," the ministry said.

Under the LRS, an individual is permitted to remit overseas up to USD 2.5 lakh annually. Any remittance by an individual above this threshold would require RBI approval.

The ministry on May 16 notified the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023 to include international credit card payments in the LRS.

With this amendment, the tax treatment of spending by debit and credit cards have been brought at par under FEMA.

So far, only expenses incurred through debit card swipes abroad was covered under LRS while that through credit card was exempt.

Such expenditures would attract a TCS of 20 per cent from July 1, up from the current 5 per cent rate.

Nangia Andersen LLP Partner Sandeep Jhunjhunwala said business travel expenses borne by an employee would be considered under LRS and those borne by the employer will fall outside its scope.

"Practical challenges could be faced in ascertaining whether an employee's travel is a business trip or not. Also, testing of whether the expenses are borne by the employer to effectively apply the exclusion, could be a daunting exercise especially where the payments are not routed through the AD (authorised dealer) Banker and effected through credit cards," Jhunjhunwala added.