Proposed Amendment In The Liberalised Remittance Scheme

The Indian government has proposed to impose a 20% tax on expenditures made abroad under the Liberalised Remittance Scheme (LRS). If you use your international credit or debit card to purchase in India, you will be liable to pay a 20% tax on the amount spent.

The LRS scheme allows Indian residents to remit up to US$250,000 per year without prior permission from the Reserve Bank of India. The proposed tax on international card purchases will only apply to amounts spent more than US$7 lakh (approximately Rs. 54 lakh) in a financial year. The government has said that the proposed tax aims to curb the outflow of foreign exchange and encourage people to shop for luxury goods in India. However, some experts believe that the tax could have the opposite effect and drive up the sale of luxury brands in India. The tax will narrow the price gap between luxury goods in India and abroad. Luxury goods are often cheaper in foreign countries due to lower taxes and duties. However, with the 20% tax, the prices of luxury goods in India will align more with those in foreign countries.

As a result, some people who would have previously shopped for luxury goods abroad may now choose to buy them in India. This could boost the sales of luxury brands in India, especially in the premium and super-premium segments. Of course, it is still too early to say for sure what the impact of the proposed tax will be. However, the tax could drive up the sale of luxury brands in India.

The Liberalized Remittance Scheme (LRS) is a scheme introduced by the Reserve Bank of India (RBI) in 2004 that allows Indian residents to remit up to USD 250,000 per year without prior permission from the RBI. The scheme was introduced to promote inward investment and facilitate trade and commerce. Under the LRS, Indian residents can remit money abroad for a variety of purposes, including:

• Personal expenses, such as education, medical treatment, and travel
• Investment, such as buying property or shares
• Business, such as making payments to foreign suppliers or investing in foreign ventures

The LRS has positively impacted the Indian economy in several ways.

1. First, it has helped to promote inward investment. By making it easier for Indian residents to remit money abroad, the LRS has encouraged foreign investors to invest in India. This has helped to boost the Indian economy and create jobs.
2. Second, the LRS has facilitated trade and commerce. By making it easier for Indian businesses to pay foreign suppliers, the LRS has helped boost trade between India and other countries. This has helped to improve the Indian economy’s export performance.
3. Third, the LRS has helped to improve the availability of foreign exchange. By allowing Indian residents to remit money abroad, the LRS has increased the supply of foreign exchange in India. This has helped to stabilize the Indian rupee and made it easier for businesses to import goods and services.

The LRS has also had a positive impact on Indian citizens. By making it easier for them to remit money abroad, the LRS has helped them to support their families and friends who live overseas. It has also helped them invest in education and healthcare, improving their quality of life.

The Liberalized Remittance Scheme has positively impacted the Indian economy and its citizens. It has helped to promote inward investment, facilitate trade and commerce, and improve the availability of foreign exchange. Here are some of the specific benefits of the LRS for Indian citizens:

• It allows them to remit money abroad to support their families and friends.
• It allows them to invest in education and healthcare abroad.
• It allows them to purchase foreign goods and services.
• It allows them to travel abroad more easily.
• It can help them to diversify their investments and reduce their risk.

The LRS has also been criticized for many reasons.

1. First, it has been argued that the scheme has led to an outflow of foreign exchange from India. This is because some Indian residents have used the LRS to remit money abroad for speculative purposes, such as buying foreign assets.
2. Second, it has been argued that the scheme has been used to circumvent foreign exchange regulations. For example, some Indian residents have used the LRS to remit money abroad to invest in foreign ventures without obtaining prior permission from the RBI.
3. Third, it has been argued that the LRS has benefited wealthy Indians at the expense of the poor. This is because the scheme has allowed wealthy Indians to remit large sums of money abroad, while the poor have not been able to take advantage of the scheme.

Overall, the LRS is a complex scheme with positive and negative impacts. It is important to weigh the benefits and drawbacks of the scheme carefully before deciding whether or not to use it. The RBI has taken steps to address some of these criticisms. For example, the RBI has restricted the use of the LRS for speculative purposes. The RBI has also increased the scrutiny of applications for the LRS to prevent money laundering and terrorist financing. Despite these measures, the LRS remains a controversial scheme.

The amendment is proposed to come into effect from October 1, 2023. The government has said that the proposed tax aims to curb the outflow of foreign exchange and encourage people to shop for luxury goods in India. However, some experts believe that the tax could have the opposite effect and drive up the sale of luxury brands in India. The tax will narrow the price gap between luxury goods in India and abroad. Luxury goods are often cheaper in foreign countries due to lower taxes and duties. However, with the 20% tax, the prices of luxury goods in India will align more with those in foreign countries.

As a result, some people who would have previously shopped for luxury goods abroad may now choose to buy them in India. This could boost the sales of luxury brands in India, especially in the premium and super-premium segments.

• The amendment is likely to have a negative impact on the luxury goods industry in India. The industry is already facing challenges due to the COVID-19 pandemic and the rising cost of living. The proposed amendment will make it more expensive for people to buy luxury goods in India, which could lead to a decline in sales.
• The amendment could also lead to job losses in the luxury goods industry. The industry employs many people, including sales associates, designers, and manufacturers. The proposed amendment could lead to layoffs in these sectors as businesses struggle to cope with the higher costs.
• The amendment could also harm the Indian economy. The luxury goods industry is a major contributor to the economy, generating billions of dollars annually. The proposed amendment could lead to a decline in revenue, which could have a knock-on effect on other sectors of the economy.

Of course, it is still too early to say for sure what the impact of the proposed tax will be. However, the tax could also drive up the sale of luxury brands in India. Here are some other factors that could also affect the sale of luxury brands in India:

• The overall economic situation in India. If the economy is doing well, people will have more disposable income to spend on luxury goods.
• The exchange rate between the Indian rupee and other currencies. If the rupee weakens, luxury goods will become more expensive in India.
• The availability of luxury brands in India. If more luxury brands open stores in India, people will have more options.

Overall, the proposed amendment to the LRS will likely harm India’s luxury goods industry. The amendment could lead to job losses, declining sales, and negatively impacting the Indian economy. The proposed amendment is still under consideration, and it is possible that it could be modified or even withdrawn. However, the amendment will likely harm India’s luxury goods industry. In conclusion, the proposed amendment to the LRS is a controversial move that could have a negative impact on the Indian economy and the luxury goods industry. It is important to carefully consider the pros and cons of the amendment before it is implemented