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exercise the option to ascertain the value in terms of clause (b) for a financial year and such option shall not be withdrawn during the remaining part of that financial year.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