The Reserve Bank of India has issued a notification, advising foreign airlines to stop using overseas banks for settlement of online sale of air tickets in India. According to the RBI, debit and credit card companies were allowing foreign airlines to choose whether to select the country and currency of their choice for transactions from online ticketing.

“In such transactions, the overseas bank as the acquiring bank receives the funds from Card Issuing Company in its Vostro account maintained with an Authorised Dealer bank in India or in its foreign currency account maintained abroad and makes the payment in foreign currency overseas to the foreign airline.”

The RBI has said that this practice is not in conformity with the Foreign Exchange Management Act, and airlines are permitted to repatriate the surplus arising from sale of air tickets through their agents in India, only after payment of the local expenses and applicable taxes in India.

Last year, the RBI imposed restrictions on online wallet PayPay in India: before limits were imposed on PayPal’s activities in India, PayPal allowed its users to use remaining balance for purchase of goods or services online, thus operating as a virtual wallet, and not routing the purchases through the Indian banking system. Following the clampdown, Indian users are not allowed to receive payments for over $500 via Paypal, all money received into a PayPal account must be transferred to a customer’s India bank account within 7 days from the receipt of confirmation from the buyer, and Indian account holders cannot use Paypal to make payments.

RBI Circular

Acquisition of credit card/debit card transactions in India by overseas banks – payments for airline tickets
RBI/2010-11/460
A.P. (DIR Series) Circular No. 48

April 05, 2011

To
All Category – I Authorised Dealer Banks

Acquisition of credit card/debit card transactions in India
by overseas banks – payments for airline tickets

Attention of the Authorised Dealers Category-I (AD Category-I) banks is invited to Regulation 6 of the Foreign Exchange Management (Foreign currency accounts by a person resident in India) Regulations, 2000, notified vide Notification No. FEMA 10/2000-RB, dated May 3, 2000, read with para 7(v) of Annexure I to the A.D. (M.A. Series) Circular No. 11 dated May 16, 2000, in terms of which airline companies incorporated outside India are permitted to repatriate the surplus arising from sale of air tickets through their agents in India after payment of the local expenses and applicable taxes in India.

2. It has come to our notice that in certain cases where the payment for the tickets are made by the residents using credit /debit card, Card Companies have been providing arrangements to the foreign airlines operating in India to select the country and currency of their choice, in respect of transactions arising from the sale of the air tickets in India in Indian Rupees (INR). In such transactions, the overseas bank as the acquiring bank receives the funds from Card Issuing Company in its Vostro account maintained with an Authorised Dealer bank in India or in its foreign currency account maintained abroad and makes the payment in foreign currency overseas to the foreign airline.

3. It is clarified that the practice adopted by foreign airlines, as mentioned above, is not in conformity with the extant provisions of the Foreign Exchange Management Act, 1999. AD Category- I banks may, therefore, advise the foreign airlines to discontinue immediately the practice of using overseas banks for settlement of INR transactions on account of sale of air tickets in India.

4. AD Category -I banks may bring the contents of this circular to the notice of their constituents / customers concerned (foreign airlines).

5. The directions contained in this circular have been issued under sections 10(4) & 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

Yours faithfully,

(Dr. Sujatha Elizabeth Prasad)
Chief General Manager