Circular No.180/06/2014-ST, Dated: October 14, 2014 supersedes Circular No. 163/14/2012-ST, dated 10.7.2012 and clarifies service tax applicability for the scenario where the Indian bank or financial institution provides services on  principal to principal basis to the foreign bank/entity, on its own account, and thus the service is covered by the general rule, i.e. rule 3 of the Place of Provision of Service Rules, 2012.
The entire sequence of transactions in remittances of money from overseas through the MTSO route is as under:
Step 1: Remitter located outside India (say ‘A’) approaches a Money Transfer Service Operator (MTSO)/bank (say B)  located outside India for remitting the money to a beneficiary in India; ‘B’ charges a fee from ‘A’.
Step 2:’B’ avails the services of an Indian entity (agent) (say ‘C’) for delivery of money to the ultimate recipient of money in India (say ‘E’); ‘C’ is paid a commission/fee by ‘B’.
Step 3:’C’ may avail service of a sub-agent (D). ‘D’ charges fee/commission from ‘C’.
Step 4:’C’ or ‘D’, as the case may be, delivers the money to ‘E’ and may charge a fee from ‘E’.

Following has been clarified in the circular:

Sr. No.

Issues Clarification
1. Whether service tax is payable on remittance received in India from abroad?

 

No service tax is payable perse on the amount of foreign currency remitted to India from overseas. As the  remittance comprises money, it does not in itself constitute any service in terms of the definition of’service’ as contained in clause (44) of section 65B of the Finance Act 1994.
2. Whether the service of an agent or the representation service provided by an Indian entity/ bank to a foreign money transfer service operator (MTSO) in relation to money transfer falls in the category of intermediary service?

 

Yes. The Indian bank or other entity acting as an agent to MTSO in relation to money transfer, facilitates in the delivery of the remittance to the beneficiary in India. In performing this service, the Indian ank/entity facilitates the provision of Money transfer Service by the MTSO to a beneficiary in India.

For their service, agent receives commission or fee. Hence, the agent falls in the category of intermediary as defined in rule 2(f) of the Place of Provision of Service Rules, 2012.

3. Whether service tax is leviable on  the service provided, by an intermediary/agent located in India (in taxable territory) to TSOs located outside India?

 

Service provided by an intermediary is  covered by rule 9 (c) of the Place of Provision of Service Rules, 2012. As per this rule, the place of provision of service is the location of service provider. Hence, service provided by an agent, located in India (in taxable territory), to MTSO is liable to service tax.

The value of intermediary service provided by the agent to MTSO is the commission or fee or any similar amount, by whatever name called, received by it from MTSO and service tax is payable on such commission or fee.

4. Whether service tax would apply on the amount charged separately, if any, by the Indian bank/entity/agent/sub-agent from the person who receives remittance in the taxable territory, for the service provided by such Indian ank/entity/agent/sub-agent Yes. As the service is provided by Indian bank/entity/agent/sub- agent to a person located in taxable  territory, the Place of Provision is in the taxable territory. Therefore,  service tax is payable on amount charged separately, if any.
5. Whether service tax would apply on the services provided by way of currency conversion by a bank /entity located in India (in the taxable territory) to the recipient of remittance in India? Any activity of money changing comprises an independent taxable activity. Therefore, service tax applies on currency conversion in such cases in terms of the Service Tax (Determination of Value) Rules. Service provider has an option to pay service tax at prescribed rates in terms of Rule 6(7B) of the Service Tax Rules 1994.
6. Whether services provided by sub- agents to such Indian Bank/entity located in the taxable territory in relation to money transfer is leviable to service tax? Sub- agents also fall in the category of intermediary. Therefore, service tax is payable on commission received by sub- agents from Indian bank/entity.

CA Sumit Grover

Vide Circular 180/06/2014 – ST, dated 14th Oct’14, following issues have been clarified by CBEC:

1) No service tax is payable on foreign currency remitted to India from overseas.

2) Services provided by agent or the representation service provided by an Indian entity/ bank to a foreign money transfer service operator (MTSO) in relation to money transfer falls in the category of intermediary service, therefore the same shall be subject to service tax.

3) Sub-agents all under the category of intermediary services as well.

4) Service tax would apply on the services provided by way of currency conversion by a bank /entity located in India (in the taxable territory) to the recipient of remittance in India

5) Amount charged separately, if any, by the Indian bank/entity/agent/sub-agent from the person who receives remittance in the taxable territory, for the service provided by such Indian bank/entity/agent/sub-agent, also falls in the ambit of service tax.

The said circular has been given below for your reference.

Circular No. 180/06/2014 – ST

F. No 354/105/2012-TRU (Pt.)

Dated 14th October, 2014

Subject: –  Levy of service tax on activities involved in relation to inward remittances from abroad to beneficiaries in India through MTSOs- reg.

Vide circular No. 163/14/2012–ST, dated 10th July, 2012, on the issue of levy of service tax on the activities involved in the inward remittance it was clarified that there is no service tax per se on the foreign exchange remitted to India from outside for the reason that money does not constitute a service and that conversion charges or fee levied for sending such money would also not be liable to service tax as the person sending money and the company conducting the remittance are both located outside India. It was also clarified that the Indian bank or financial institution who provides service to the foreign bank or any other entity is not liable to service tax as the place of provision of service shall be the location of the recipient of service. This clarification covers the scenario where the Indian bank or financial institution provides services on principal to principal basis to the foreign bank/entity, on its own account, and thus the service is covered by the general rule, i.e. rule 3 of the Place of Provision of Service Rules, 2012.

2. However, subsequently, it had been brought to the notice of the Board that the foreign money transfer service operator (MTSO), conducting remittances to beneficiaries in India, have appointed Indian Banks/financial entities as their agents in India who provide agency /representation service to such MTSO for furtherance of their service to a beneficiary in India. The agents are paid a commission or fee by the MTSO for their services. The entire sequence of transactions in remittances of money from overseas through the MTSO route is as under:

Step 1: Remitter located outside India (say ‘A’) approaches a Money Transfer Service Operator (MTSO)/bank (say B) located outside India for remitting the money to a beneficiary in India; ‘B’ charges a fee from ‘A’.

Step 2: ‘B’ avails the services of an Indian entity (agent) (say ‘C’) for delivery of money to the ultimate recipient of money in India (say ‘E’); ‘C’ is paid a commission/fee by ‘B’.

Step 3: ‘C’ may avail service of a sub-agent (D). ‘D’ charges fee/commission from ‘C’.

Step 4: ‘C’ or ‘D’, as the case may be, delivers the money to ‘E’ and may charge a fee from ‘E’.

3. Clarifications have been sought as to whether such agents (referred in Step 2 above) would fall in the category of intermediary, and if so, whether service tax would be leviable on the commission/fee amount charged by such agents. Clarifications have also been sought as to whether the services provided by sub agent (referred in step 3 & 4 above) are leviable to service tax and on certain other related issues.

  1. The issues discussed above have been examined and it is clarified as follows,-
 No. Issues Clarification
1 Whether service tax is payable on remittance received in India from abroad? No service tax is payable per se on the amount of foreign currency remitted to India from overseas. As the remittance comprises money, it does not in itself constitute any service in terms of the definition of ‘service’ as contained in clause (44) of section 65B of the Finance Act 1994.
2 Whether the service of an agent or the representation service provided by an Indian entity/ bank to a foreign money transfer service operator (MTSO) in relation to money transfer falls in the category of intermediary service? Yes. The Indian bank or other entity acting as an agent to MTSO in relation to money transfer, facilitates in the delivery of the remittance to the beneficiary in India. In performing this service, the Indian Bank/entity facilitates the provision of Money transfer Service by the MTSO to a beneficiary in India. For their service, agent receives commission or fee. Hence, the agent falls in the category of intermediary as defined in rule 2(f) of the Place of Provision of Service Rules, 2012.
3 Whether service tax is leviable on the service provided, as mentioned in point 2 above, by an intermediary/agent located in India (in taxable territory) to MTSOs located outside India? Service provided by an intermediary is covered by rule 9 (c) of the Place of Provision of Service Rules, 2012. As per this rule, the place of provision of service is the location of service provider. Hence, service provided by an agent, located in India (in taxable territory), to MTSO is liable to service tax.The value of intermediary service provided by the agent to MTSO is the commission or fee or any similar amount, by whatever name called, received by it from MTSO and service tax is payable on such commission or fee.
4. Whether service tax would apply on the amount charged separately, if any, by the Indian bank/entity/agent/sub-agent from the person who receives remittance in the taxable territory, for the service provided by such Indian bank/entity/agent/sub-agent Yes. As the service is provided by Indian bank/entity/agent/sub-agent to a person located in taxable territory, the Place of Provision is in the taxable territory. Therefore, service tax is payable on amount charged separately, if any.
5. Whether service tax would apply on the services provided by way of currency conversion by a bank /entity located in India (in the taxable territory) to the recipient of remittance in India? Any activity of money changing comprises an independent taxable activity. Therefore, service tax applies on currency conversion in such cases in terms of the Service Tax (Determination of Value) Rules. Service provider has an option to pay service tax at prescribed rates in terms of Rule 6(7B) of the Service Tax Rules 1994.
6. Whether services provided by sub-agents to such Indian Bank/entity located in the taxable territory in relation to money transfer is leviable to service tax? Sub-agents also fall in the category of intermediary. Therefore, service tax is payable on commission received by sub-agents from Indian bank/entity.
  1. Accordingly, Circular No. 163/14/2012-ST, dated 10.7.2012 stands superceded.
  2. Trade Notice/Public Notice may be issued accordingly.
  3. Please acknowledge the receipt of this circular. Hindi version to follow.

Yours sincerely,

(Dr. Abhishek Chandra Gupta)

Technical Officer, TRU

Tel: 011-2309 2037

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17 responses to “Service tax on services in relation to inward remittances from abroad”

  1. Raghavendra Gururaj says:

    Experience Guidance required.

    I have been hearing from many that their is no income tax on foreign currency Purchase order which is paid against Invoice raised to Foriegn companies for services carried out.

    Should we pay income tax for any inward remittance for any services carried out in India for foriengn companies.???

  2. Narendra01 says:

    I am Indian resident with GSTIN# having local rental income.. Further I give guidance to China exporter to export their goods to Africa. Against this guidance China company pay me referral commission in foreign currency (US$), remitted to my account in Kotak Bank.
    My two questions are;
    1) Any service-tax/GST payable by me on this ?
    2) Do i have to mention this in GSTR-1 return.?

  3. pranita says:

    Can I charge service tax if i’m raising Invoice to China and providing service in India?

  4. Rajni Chaudhary says:

    I am working in an American company in Delhi. From America my boss send money in current account in India to run an IT company. So, should We need to pay service tax?

    • Dr.P.Nehemiah says:

      Sir, we are working in Ethiopia in Government University and we remit money every month to beneficiary account in India. We have got the information that 15% service tax would be deducted from the payout amount before reaching the beneficiaries account from November 2016.Is it correct. Can you kindly send the exact information

  5. Manish Bansal says:

    Sir,
    I am a service provider Surveyor to my overseas clients for the services performed in India. As I can not invoice the service tax and TDS to my clients and getting the remittances of my fee in foreign currency in my account.
    In this case, please advise, if the service tax is applicable on my services.

  6. Adi says:

    Dear Sir,

    Can we avail Credit on Govt Ser Tax On Fx Conversion in-case of Inward Remittance..!!!

  7. kiran.s says:

    Hello sir,

    Iam a forwarding agent, my china agent is going to send containers to india, after reaching india i need to arrange transport and delivery charge and this charges along with my commission altogether he will send me payment , my question, out of the total amount i receive is liable to service tax , if no on what amount service tax is applicable, await your advice pls.

  8. mukesh kumar says:

    We get commission in foreign currency from our sister concern which is located in abroad against sales of
    Machines and it’s spares parts in India which has been dispatched by us i.e. (From Inidia) or directly has been
    dispatched from our sister concern to Indian Customer, they raise credit not on us in foreign currency for
    commission, whether service tax will be applicable on such case.

  9. Ulhas says:

    Dear Sir,

    Can we avail Service Tax Credit on Bank Charges against Export remittance received in Bank?

  10. Ulhas says:

    Dear Sir,

    Can we avail Cenvat Credit on Service Tax Charge by Bank on remittance received against Export?

  11. sudheesh says:

    Dear Sir,

    is this circular withdrawn or active. if this active in which code service tax registration to be amendment.

    Please guide me

    Regards
    Sudheesh

  12. dinane says:

    sir,
    can i ask a question

    if we receive money from abroad
    is this will be eligilble for service tax?

    i.e when received money from abroad to india,we have to pay service tax?

    or else what this statement excatly mean because i dont understand

  13. Manish says:

    Yes service tax would be applicable on commission

  14. Vijay Fegade says:

    Dear Sir,

    We get commission in foreign currency from our sister concern which is located in abroad against sales of Machines and it’s spares parts in India which has been dispatched by us i.e. (From Inidia) or directly has been dispatched from our sister concern to Indian Customer, they raise credit not on us in foreign currency for commission, whether service tax will be applicable on such case.

    Thanks & Regards
    Vijay

  15. M.S.Gopalakrishnan says:

    What would be the date of applicability of the clarifications in above Circular ? The Beneficiary is considered to be in India. The real Beneficiary is the person who approached the MTSO/ bank abroad.

  16. Viren Mehta says:

    Sir, We are the Call Centre and calling abroad for survey on behalf of our overseas client and get remittance in foreign currency from overseas client. Do we have to charge service tax on invoice generated in foreign currency and pay service tax ??

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