Is GST payable on foreign exchange gain/loss in case of import of services?

It is a common understanding that GST is payable on import of services, subject to place of supply provisions. What is interesting in foreign transactions is that the base value of an invoice issued in foreign currency remains fixed, however, it might keep changing when it gets converted to INR at different points in time. For example, an invoice issued for 100 USD would be for 100 USD today as well as after six months, however, the value in INR might be different today than after six months depending on foreign exchange rate fluctuations.

In the present article, lets deliberate over this interesting angle as to what would be the taxable value and how can one pay the correct amount of tax with no exposure to interest and penalties.

In case of import of services (other than associated enterprises), valuation of taxable amount shall be done on the following basis [Section 13(3) of the CGST Act read with Rule 34(2) of the CGST Rules]:

• When payment to the supplier happens within 60 days from the invoice date, the rate of exchange as per GAAP on the date of payment
• When payment to the supplier happens after 60 days from the invoice date, the rate of exchange as per GAAP on the 61st day [This value might be different from actual value paid eventually to the supplier and linkage between value of payment in books and value on which GST is paid must be avoided]

The tax becomes due on or before 20^th of the succeeding month according to the time of supply derived as per the above two scenarios. Any delay in payment attracts levy of interest & penalties. Hence, it is better to pay GST on time irrespective of payment status to vendor [refer second scenario] since it is not essential that the consideration should have been paid at the time of valuation of taxable value.

One might wonder how a person shall pay tax on a value not even paid as a consideration to the supplier until that point in time. It is worth noting that the “value of taxable supply” provision contained u/s 15(1) of the CGST Act uses the words price which is “paid or payable”. It is not essential for the value to have been paid, that is, it could be payable in future as well. The definition of “consideration” contained u/s 2(31) corroborates this understanding that consideration includes any payment “made or to be made”.

Hence, the archetypal question as to whether foreign exchange gain or loss would attract GST is addressed by the above two scenarios – in case of the first scenario, the foreign exchange gain or loss gets considered since tax is paid on the final amount paid to the supplier; in case of the second scenario, the foreign exchange gain or loss till the 61^st day only gets considered since GST becomes due on the 61^st day.