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Service Tax on Forex Transactions

20 May 2008

Please explain the following:

- S.tax on Retail Sale-purchase of foreign Currency i.e to general public.

I think it is .25%+.2%+.1% of the INR value arrived.

-S.tax on Bulk Sale-Purchase of Forex i.e. to Banks and other FFMCs (Full Fledged money Changers)

Is this also at the same rate mentioned above. Please tell the time of leveying of S.tax at this transaction. Further Cr. of Service Tax paid on purchase will be allowed or not.

Any information on this issue will always be welcome.

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3 Replies

Ashish M (Chartered Accountant) (2731 Points)
Replied 28 May 2008

1. Service Tax Levied on FX Transactions
With effect from May 16, 2008 onwards, all foreign exchange transactions executed will be subject to a service tax. The rules allow 2 methods of computing this tax:
Method 1: The service tax will be imposed at a rate of 0.25% of the gross amount of currency exchanged. The service tax calculated will additionally include an Education Cess of 3%, making the effective tax rate applied 0.2575% (i.e. 1.03 x 0.25%).
Method 2: A service fee must be imposed on all foreign exchange transactions, and the service tax of 12.36% will be imposed on this service fee.
Our local custodians have decided to adopt Method 2 to compute service tax by imposing a service fee of INR100 (approximately USD2.35). Effectively, a fee of INR 112.36, inclusive of tax (i.e. 1.1236 x 100), will be imposed on every foreign exchange transaction executed to purchase/sell INR.
From our local custodian’s discussions with other market participants, we understand that this approach will be adopted uniformly across the market.
We will advise separately the impact of the new FX service fee on clients’ FX transactions.

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(Guest)

DEAR,

I WANNA KNOW WHETHER THERE IS SERVICE TAX FEE FOR DEMMURAGE HAPPENED IN NEW DELHI. CARRIER IS: EMIRATES. AS OUR UNDERSTANDING, DEMMURAGE IS PENALTY NOT ONE KIND SERVICE, SO THERE SHOULD BE NO SERVICE TAX FEE, RIGHT?

JAYANTA DUTTA (Officer) (24 Points)
Replied 13 April 2010

Dear,

I fail to submit the Return of Input Service Distributors for April'09-Sept'09 period. Now i want to submit the same but first should be deposit the penalty for late return of Input service distributors. Bur i can't found the code for penalty for the same service. Somebody please tell me the Penalty code for Input service Distributors.