Changes in rate of Service tax on Money Changers

CA Pradeep Jain, Shreena Anchalia

 The rate of service tax on Authorised dealers in foreign exchange or authorized changers have been changed against this year by Budget, 2012.

The method of computation of service tax is prescribed in sub-rule(7B) of principal Rule 6 of Service Tax Rules, 1994. The said Rule is reproduced here under for ready reference: (7B). The person liable to pay service tax in relation to purchase or sale of foreign currency, including money changing, provided by a foreign exchange broker, including an authorised dealer in foreign exchange or an authorized money changer, referred to in sub-clauses (zm) and (zzk) of clause (105) of section 65 of the Act, 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 66 of Chapter V of the Act, namely:

(a) 0.1 per cent. of the gross amount of currency exchanged for an amount upto rupees 100,000, subject to the minimum amount of rupees 25; and

(b) rupees 100 and 0.05 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 550 and 0.01 per cent. of the gross amount of currency exchanged for an amount of rupees exceeding 10,00,000, subject to maximum amount of rupees 5000:
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that the person providing the service shall exercise such option for a financial year and such option shall not be withdrawn during the remaining part of that financial year.

The composition rate in relation to purchase or sale of foreign currency, including money changing, have been changed by amending Sub-rule (7B) of Rule 6 of Service Tax Rules, 1994 vide Notification No. 3/2012-ST dated 17.03.2012 in the following manner:

Thus, the rates have been increased.

For example:

Example 1: – If currency exchanged is US$ 1000 and the exchange rate of Rs. 35, then

Gross Amount will be Rs. 35,000/-

Service tax will be @ 0.12% of Gross amount i.e. Rs. 42.

Example 2: – If currency exchanged is US$ 10, 000 the exchange rate of Rs. 35, then the rate of service tax will be Rupees 120 and 0.06 percent of the gross amount of currency exchanged.

Gross Amount will be US$ 10, 000 multiplied by Rs. 35 = Rs. 35, 0000/-

Service tax will be Rs. 120 + (0.06% of Rs. 35, 0000) = Rs. 120 + Rs. 210/- = Rs. 330/-

This has been increased as the main service tax rate has been increased from 10% to 12%. But this multi layer rates has created ambiguity while filing the returns. This rate has to be decided individual transaction wise. This may happen that in first transaction, the service tax is paid as per first slab. But for the second transaction, it is paid as per second entry. But the return does not permit to enter the different value. It asks for only one transaction value and service tax on the same calculated by a single rate. This practical difficulty was faced by a big hotel and the solution was asked from us. We have also tried the same but of no use. Even we tried to contact the software experts in the department but of no use. If there is amendment in the service tax then it should be discussed with the software experts handling the aces system and they should also incorporate the changes for the same. We have seen that the POT was introduced but the returns were not changed accordingly. The changes were incorporated even after the last date of filing of return. Then date was extended but the excuse given was that e-filing of returns has been made mandatory but the small assessee will find it difficult to file it.

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