RBI asks airlines to stop settling domestic transactions overseas

Reserve Bank of India (RBI) has asked foreign airlines operating in India to desist from the practice of settling transactions involving online sale of tickets through credit or debit cards overseas, which is against the country's foreign exchange regulations.

Some foreign airlines operating in India have made arrangements with credit card companies for allowing customers to select the country and currency of their choice while buying tickets in India, RBI pointed out.

RBI said instances where payments for the tickets are being made by the residents using credit /debit cards and the card companies, in turn, making arrangements to the foreign airlines operating in India to select the country and currency of their choice, against transactions arising from the sale of the air tickets in India in Indian rupees have come to its notice.

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, RBI noted.

"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 ," RBI said.

FEMA rules allow airline companies incorporated outside India 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, RBI said.

RBI has advised foreign airlines to "discontinue immediately the practice of using overseas banks for settlement of rupee transactions on account of sale of air tickets in India."

The central bank has asked authorised dealer banks to bring the circular to the notice of their constituents and concerned foreign airlines.