Service tax for foreign exchange

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Anjitha Elizabeth Innocent (Querist)
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20 December 2012 Dear all,
How is the taxable amount and service tax computed for a dealer in foreign currency?

Thanking in anticipation

Kaushik Vinod

Kaushik Vinod (Expert)
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21 December 2012 Hi Anjitha,

The value of taxable amount for a dealer in foreign exchange is calculated as follows :

For a currency, when exchanged from, or to, Indian Rupees (INR), the value shall be equal to the difference in the buying rate or the selling rate, as the case may be, and the Reserve Bank of India (RBI) reference rate for that currency 3[at that time], multiplied by the total units of currency.
Example I :
US$1000 are sold by a customer at the rate of Rupees 45 per US$.
RBI reference rate for US$ is Rupees 45.50 for that day.
The taxable value shall be Rupees 500.
Example II :
INR70000 is changed into Great Britain Pound (GBP) and the exchange rate offered is Rupees 70, thereby giving GBP 1000.
RBI reference rate for that day for GBP is Rupees 69.
The taxable value shall be Rupees 1000:
Provided that in case where the RBI reference rate for a currency is not available, the value shall be 1% of the gross amount of Indian Rupees provided or received, by the person changing the money:
Provided further that in case where neither of the currencies exchanged is Indian Rupee, the value shall be equal to 1% of the lesser of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee on that day at the reference rate provided by RBI.]

Optional method given in rule 6(7B) of service tax rules,1994(lower rate of tax)
80[81[(7B) The person liable to pay service tax in relation to purchase or sale of foreign currency, including money changing, shall have the option to pay an amount calculated at the following rate towards discharge of his service tax liability instead of paying service tax at the rate specified in section 66B of Chapter V of the Act, namely :]
(a) 82[0.012*] per cent of the gross amount of currency exchanged for an amount upto rupees 100,000, subject to the minimum amount of rupees 83[30]; and
(b) rupees 84[120 and 0.06] per cent of the gross amount of currency exchanged for an amount of rupees exceeding rupees 100,000 and upto rupees 10,00,000; and
(c) rupees 85[660 and 0.012] per cent of the gross amount of currency exchanged for an amount of rupees exceeding 10,00,000, subject to maximum amount of rupees 86[6000]:
Provided that the person providing the service shall exercise such option for a financial year and such option shall not be withdrawn during the remaining part of that financial year.]
87[***]]

Thanks