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Calculation of Tax on Foreign Exchange Conversion


The implementation of GST (Goods And Service Tax) on July 1, 2017 has revised the tax structure of transactions on several goods and services, including forex services in India. The revised rates for forex services come as a welcome move as the taxes often lie between 0.05% to 0.18% of the total forex transaction. When partaking in any kind of foreign exchange services like currency exchange, money transfer, or buying a forex card, one is only expected to pay the GST; and as per the directive from the Government of India, one is expected to pay 18% on the forex transactions that comes under the taxable value bracket.

So what is “taxable value”? Taxable value is the set portion of the transaction upon which tax is levied. This reduces the amount of tax one has to pay on forex services greatly. Currently the government has set up 3 slabs of taxable value, based on the amounts of transactions.

Slab 1: Up To Rs. 1 Lakh: On forex transactions up to Rs. 1 lakh, the taxable value stands at 1%, and the minimum taxable value is at Rs. 250.
Here 1% of Rs. 25,000 is Rs. 250. Thus for transactions up to Rs. 25,000, the taxable value is Rs. 250.
18% of this taxable value (Rs. 250) is a mere Rs. 45.
Hence the minimum tax one has to pay in Slab 1 is Rs. 45.
Similarly, the maximum payable tax is Rs. 180.

Slab 2: Rs. 1 Lakh to Rs. 10 Lakh: In Slab 2, the taxable value is calculated as 1000 + 0.5% of the amount above 1 lakh.
Considering the value of transaction to be Rs. 5 lakh, then
Taxable value = 1000 + (0.5% * 4) = 1000 + 2000 = 3000
Actual tax = 18% of 3000 = Rs. 540.
Similarly, calculating the lower limit (tax on Rs. 1 lakh transaction) and upper limit (tax on Rs. 10 lakh transaction), we get the lower and upper limit of taxes for Slab 2, which is Rs. 180 and Rs. 990, respectively. 

To know more about Service Tax on Forex Transactions in India, visit source blog.
Source: https://yourexpertguide.wordpress.com/2019/04/12/tax-you-have-to-pay-on-foreign-exchange-transactions-in-india/


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