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How to pay GST on exchanging Currency

29/Nov/2017
How to pay GST on exchanging Currency

There’s more to converting currencies than just knowing the foreign exchange rate. We are talking about taxes. In this article, you will learn how to calculate service tax (now GST - goods and services tax) and taxable value when interchanging currencies in India.

Why Service Tax?

We know that service tax is levied on any service provided or to be provided for any consideration. For the same reason, when foreign-exchange dealers and foreign banks in India or other banks provide the service of converting one currency to another, they charge a fee for it.

As stated by the government of India, whenever there is a sale or purchase of a foreign currency, a service tax on the gross amount of the currency exchanged is to be charged.

For NRIs, this topic is of even greater significance. Please don’t forget to sign up before you subscribe to our NRI plan.

How to Calculate it?

The computation of the value of services can become a little difficult. For this reason, the government has prescribed certain ways to get a handle on it.

The value of supply of services, when purchasing or selling foreign currency, can be determined by the supplier of service in the following two ways.

Learn from the cool infographic below or keep reading for details and examples.

GST rate on currency exchange

Method 1

  1. When converting a currency from or to Indian rupees

When RBI reference rate is available

For a currency, when exchanged from, or to, Indian Rupees (INR), the value will be equal to the difference in the buying rate or the selling rate, as the case may be, and the current RBI exchange rate or reference rate for that currency at that time, multiplied by the total units of currency.

For example, let’s say a person converts USD 1000 into INR 65000 (@ INR 65 per USD). If the RBI’s reference rate on the day of conversion was INR 64, then the value of supply will be (65-64)*1000 = INR 1000.

Thus, the value of supply will be INR 1000 on which GST will be charged.

At AllIndiaITR, you can learn more about the impact of GST tax at what is GST tax .

When RBI reference rate is not available

In the case where the RBI reference rate for a currency is not available, then the value will be taken one percent of the gross amount of Indian Rupees provided or received by the person changing the money.

In above example, if the reference rate is not available then 1% of INR 65000 = INR 650 will be the value of supply of service.

You can find more tax-related information and interesting topics on our blog page.

  1. When converting currencies other than Indian rupees

If neither of the currencies exchanged is INR, the value shall be equal to one percent of the lesser of the two amounts the person changing the money would have received in INR by converting any of the two currencies on that day at the reference rate provided by RBI.

Method 2

The supplier can follow the rules below to determine the taxable value for the supply of foreign currency, but then this method cannot be withdrawn during the remaining part of that financial year.

  • of the gross amount of currency exchanged for an amount up to INR 1 lakh, subject to a minimum amount of INR 250
  • INR 1000 plus 0.5% of the gross amount of currency exchanged for an amount more than INR 1 lakh and up to INR 10 lakh
  • INR 5500 plus 0.1% of the gross amount of currency exchanged for an amount more than INR 10 lakh, subject to a maximum amount of INR 60000

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