Banks police business card swipes, ask users to swear off misuse
Mumbai: Businessmen, CXOs, and many among the well-heeled would now think twice before using
corporate credit cards
to plan overseas holidays, download music and movies, and buy from foreign shopping sites.
Banks are asking users of commercial or corporate cards to give an undertaking that they would be used to meet business and corporate expenses only, two senior bankers told ET.
"Just as end-use of loans given to companies are tracked, the regulator wants banks to extend the practice for business cards as well. Most banks are doing this. If they suspect a customer is repeatedly using commercial cards for personal expenses, the card could be deactivated," said one of the bankers.
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Many premium account holders with high overseas expenses often use the commercial or corporate credit cards to book flights and hotels abroad as well as make expensive purchases from foreign retailers to avoid breaching the
overseas spending limit
. Some consciously use commercial credit cards for expensive local purchases to stay out of the glare of the
Income tax department
.
A resident individual is allowed to spend $250,000 a year to buy stocks and properties from abroad as well as carry out certain current account transactions under the
liberalised remittance scheme
(LRS) of the
Reserve Bank of India
.
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Such purchases made by an individual using a personal credit (while he is in India) are counted as an LRS spent. However, the LRS limit -which is meant for individuals and not companies -is not consumed when a person (based in India) uses a commercial credit card to buy from foreign vendors.
"So, many use their business or commercial credit cards to preserve their LRS limits. Now, after a nudge from RBI, this is a loophole that authorised dealer banks are trying to plug. Once a person gives a declaration to the bank that issues the commercial credit card, misusing it for personal expenses amounts to a serious violation," said Rajesh Shah, partner at the CA firm Jayantilal Thakkar & Co.
The declaration forms spells out the various end uses of the corporate cards: statutory payments like tax, utility payments, travel payments, entertainment (such as hosting lunch for clients and business partners), insurance payments, names of the e-commerce websites etc.
A personal credit card is mapped to the permanent account number of the individual user while the corporate card is not linked to the PAN of the employee or the director using it. "Some people take advantage of this. But most corporate card users would refrain from using it for personal expenses after giving an undertaking to the bank. Also, this could compel companies to discourage such a practice as it leaves a clear trail," said another banker. Typically, when corporate cards are used for personal spends, users later repay the companies.
Significantly, overseas purchases using personal credit cards while travelling abroad is still not considered as part of the LRS limit. Sources think the step taken by banks could be a precursor to revisit the plan to include overseas card spends under LRS. "The proposal has been kept in abeyance, but we won't be surprised if the government revives it -particularly, given the reservations relating to outflows. There is no logic of excluding individual overseas card spends from LRS," said one of the persons quoted above.
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