Foreign Exchange conversion services allow users to convert their currencies to other foreign or domestic currencies.

When exchanging (purchasing or selling) a foreign currency in India, the value of supply will be calculated by the service supplier. GST on Foreign Exchange Conversion will be determined based on the value of supply.

Generally, As per GST Act 2017, the invoice value will be the taxable value and tax being computed as a percentage of the value of supply of goods and services. However, in respect of some specific businesses, the GST rules prescribe different rules for valuation. These valuation methods are optional. The supplier may, at his option, opt for valuation based on the normal valuation rules as well.

Rule 32 of CGST Rules 2017 regulates and monitors the value of the supply of services, whilst dealing with foreign Exchange.

Foreign Exchange Conversion

Determination of value in respect of certain supplies: As per Rule 32(2)(a) of CGST Act (1) Notwithstanding anything contained in the provisions of this Chapter, the value in respect of supplies specified below shall, at the option of the supplier, be determined in the manner provided hereinafter. (2) The value of supply of services in relation to the purchase or sale of foreign currency, including money changing, shall be determined by the supplier of services in the following manner, namely: –

For a currency, when exchanged from, or to, Indian Rupees, 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 reference rate for that currency at that time, multiplied by the total units of currency:

Provided that in case where the Reserve Bank of India reference rate for a currency is not available, the value shall be one per cent. 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 Rupees, the value shall be equal to one per cent. 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 the Reserve Bank of India.

Provided also that a person supplying the services may exercise the option to ascertain the value in terms of clause (b) for a financial year and such option shall not be withdrawn during the remaining part of that financial year.

Let us Understand the manner to calculate value of supply in case of foreign exchange, with help of an Example,

Amount to converted in Rate as per USD RBI Reference Rate Value of Supply *
Rs. 65000 Rs. 65 per USD Rs. 63 per USD 1000*(65-63) =2000
Rs.65000 Rs. 65 per USD Not available 1% of of INR amount =Rs 650
EURO 6500 Not available Not available 1% of USD or EURO whichever is Lower

Applicable tax will be levied on the value of Supply.

Optional Composition scheme for payment of tax on exchange of foreign currency :

A person supplying the services may exercise option to ascertain value in terms of rule 32(2)(b) for a financial year. Such option shall not be withdrawn during the remaining part of that financial year – third proviso to Rule 32(2)(a) of CGST and SGST Rules, 2017.

The optional scheme under rule 32(2)(b) of CGST and SGST Rules, 2017 is as follows

(i) one per cent. of the gross amount of currency exchanged for an amount up to one lakh rupees, subject to a minimum amount of two hundred and fifty rupees;

(ii) one thousand rupees and half of a per cent. of the gross amount of currency exchanged for an amount exceeding one lakh rupees and up to ten lakh rupees; and

(iii) five thousand and five hundred rupees and one tenth of a per cent. of the gross amount of currency exchanged for an amount exceeding ten lakh rupees, subject to a maximum amount of sixty thousand

Example: – Calculation of GST Liability Under Rule 32(2)b of CGST & SGST Rule 2017

Gross amount of currency exchanged GST
Rs. 6,500 Rs 250 i.e. 1% of 65000 or Rs 250 whichever is higher
Rs. 65,000 Rs 650 i.e. 1% of 65000 or Rs 250 whichever is higher
Rs. 6,50,000 Rs. 3750 i.e 1000 plus .50 % of 5,50,000
Rs. 65,00,000 Rs 10,500 i.e 5000 plus .10% of Rs.55,00,000
Rs 6,50,00,000 Rs 60,000 i.e 5000 plus .10% of Rs.6,40,00,000 subject to maximum of Rs 60,000

Higher transaction will enjoy lower tax in case of composition scheme as mentioned above. Suggestion and Queries are always welcome @Deepakrathore.8888@gmail.com.

(Republished with Amendments. Amendments been made by CA Anita Bhadra)

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16 Comments

  1. MAYANK MITTAL says:

    Sir I need guidance on filling on GST returns of FFMC More specific if he buys a currency from public he need to pay gst@18% on 1% of value of currency yptil Rs. 50000. and if he buys from another dealer the same is exempted (Bulk Purchase)
    In GSTr 3b for exempted purchase we show the figure in Non GST inward supply and for taxable purchase of 1% it is shown in taxable value.

    Similarly for Bulk Sale the same is shown in non gst outward sale and sale to customer is shown is shown together with purchase taxable value in 3b returns
    whether this is correct or some correction is required

  2. C.A. KETUL JAIN says:

    Comparision table show wrong information in GST column because GST column shows taxable value calculation not GST while Service tax column show the Service Tax Liability. Under Service tax maximum cap Rs. 6000 and under GST maximum Cap is Rs.10800 (60000*18%) and not Rs.60000/-
    I request you to update the article for the benefit of all professional.

  3. MUKUND SUHAGIYA says:

    how to calculate value of exemt supply for the same?
    i.e if X ltd.(money changer) has supply of exchange service of rs. 1,00,000. From which 30,000 rs. are exchange between bank and x ltd. and balance are with customers.

    so, in this case what will be the exmet value of supply….30,000 or 300(i.e. 1% of 30,000)??

  4. Arpit says:

    We Imported goods and made remittance for USD 100,000. We also maintain EEFC (USD) account with bank and USD 10,000 is paid from EEFC account and balance USD 90,000 is paid after converting it form INR. Bank charges us GST on CCY purchases for total USD 100,000.
    GST on CCY should be charged only on currency converted or total currency amount irrespective of payment done through EEFC?

  5. Praveen Narayan says:

    M/s Abc Currency exchagers is a sub dealer in Currency Exchage-
    They Buy 10,000 USD @ Rs. 63.00 on 10-01-2018 from public = Rs. 6,30,000

    Sell 10000 USD @ Rs.63.50 on 15-01-2018 to Main Dealer= Rs. 635,000 (Earn a profit of Rs.5000)

    My doubt is what is a taxable event- Buying USD on 10-01-2018 or
    Selling USD on 15-01-2018

    Or Both.

    And what is tax liability?

  6. Sundeep Jindal says:

    The GST on Rs.10 lakhs is Rs.5,500 plus 0.1% of amount above Rs.10 lakhs. So if the amount is Rs.15 lakhs than GSt shall be Rs.1080/- (18% of Rs.6000)

  7. Suresh says:

    i am working in freight forwarding company

    i have received an invoice for one vendor for INR 4,00,000/- (including GST)

    the consignment was given to me by a foreign Freight Forwarder. so i raised a debit note in USD for certain amount without GST (as GST is not applicable as the charges are paid from other country).

    now my question is we pay GST in india

    how we get back/Claim the GST paid to vendor in india.?

  8. Gagan Goyal says:

    This looks Horrendous!!!
    Let’s take a figure of Rs 10 lakh to be converted by an Exporter in INR, then he has to pay Rs 1,000/- + Rs 5,000/- (0.5% of amt converted) = Rs 6,000/- plus 18% GST on that Totaling Rs 7,080/-.
    If this Exporter is working on 5% Profit margin, that is Rs 50,000/- out of Rs 10 lakh, the government will charge over 14% of his total income just to convert the currency.
    I think this requires some serious rethinking on the finance ministries part.

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