In 2016, all items were subject to VAT and other Service Taxes. However, the introduction of GST (Goods and Services Tax) changed the intricacies of the taxation system. People started questioning GST rules on international money transfers and forex transactions. Many questioned if the currency exchange transactions were subject to GST or not. GST Implications on Currency Exchange refers to the tax levied on the conversion of one currency into another.
In this blog, let us uncover all about answering the most commonly asked questions for GST on forex conversion. So, if you are an international student travelling abroad to pursue higher studies, you must be aware of GST implications on currency exchange.
Table of contents
| Key Takeaways |
| GST on foreign exchange transactions is generally levied at 18% on the ‘taxable value’ of the transaction. |
| GST applies to services like currency exchange and money transfers but does not apply to foreign exchange gains or losses. |
| Transactions among banks or authorized dealers are exempt from GST. Additionally, inward remittances do not incur separate GST charges. |
What is GST on Currency Exchange?
In various countries including India, GST is applicable on foreign exchanges, including currency conversion. It is a process of Goods and Services Tax implication on the currency exchanges. The rate by which the tax is levied is dependent on the exact specific country and the type of foreign exchange.
What is Foreign Exchange?
Foreign Exchange (Forex) refers to the conversion of two different currencies, depending on the economic climate of the respective countries. The value of a currency is based on the laws of supply and demand in a free economy. The government of a country may also set the value of the country’s currency. Foreign exchange is managed on a global scale between banks and all the transactions fall under the control of the Bank of International Settlement.
Factors Affecting Currency Value
The currency value is dependent on marketplaces related to trade, tourism, investment and geopolitical risk. People are required to pay for the goods and services they use in another country. Thus, a tourist needs to exchange their currency as they travel from one country to another.
How to Calculate GST on Foreign Exchange?
GST on foreign exchange done via an international bank account is calculated in the following manner:
- GST on forex is calculated depending on the amount of forex currency transactions.
- The calculation is divided into 3 slab categories.
- For each slab category, a different tax percentage is calculated.
- Tax percentage is calculated on a different taxable value for each slab.
- The total amount paid is calculated by adding taxable value and respective tax percentage to it.
How Much GST is Charged on Currency Exchange?
With effect from 01 July 2017, all foreign currency conversion transactions are subject to 18% GST. It means that the GST charges are levied to exchange one currency for another. Thus, if you exchange any foreign currency (purchase or sale) from any currency exchange providers or banks, you will have to pay GST in addition to the conversion fees charged by them. The table below shows the amount of GST that needs to be paid-
| Amount of Currency Exchange | GST Charges |
| Up to INR 1 lakhs | 1% of the gross amount of currency exchanged, subject to a minimum of INR 250/- i.e. minimum GST payable is INR 45. |
| Between INR 1 lakhs to 10 lakhs | INR 1000 + 0.5% of the gross amount of currency exchanged |
| Above INR 10 lakhs | INR 5,500 + 0.1% of the gross amount of currency exchanged, subject to a maximum of INR 60,000/-, which caps GST payable at INR 10,800/-. |
Slab 1: Less than or equal to INR 1,00,000
1% of the gross amount of currency exchanged, subject to a minimum of INR 250, i.e. minimum GST payable is INR 45.
For example: On a transaction of Rs 1 lakh, the taxable value would be 1% of 1 Lakh which is Rs.1000. An 18% of taxable value is paid on the final amount which is Rs. 180
Slab 2: Greater than INR 1,00,000 but lesser than INR 10,00,000
INR 1000+0.5% of the gross amount of currency exchanged.
For example: On a transaction of Rs.5 lakh, the taxable value would be 1000 (slab1) + 0.5% (slab 2, the amount above Rs. 1 Lakh) 1000+(0.5% of 4 Lakh) which 1000+2000 =3000.
The total GST paid will be 18% of taxable value i.e 18% 3000= Rs.540
Slab 3: Greater than INR 10,00,000
INR 5,500+0.1% of the gross amount of currency exchanged, subject to a maximum of INR 60,000 which is caps GST payable at INR 10,800.
For example: On a transaction of 20 Lakh, the taxable value is 5,550+0.1% (amount above 10 Lakh) which is 5,550+0.1%(of 10 Lakh) =Rs.6,500.
The total GST paid would be 18% of 6,500 = Rs.1170
Also Read: Travelling to London for studies? Read about Currency Exchange in London and get complete information about the same.
Best International Money Transfer Services in India
The following are the best international money transfer services in India:
- Fly Forex: Fly Forex is a new-age digital platform facilitating international money transfers. It is a cost-effective service that uses real-time exchange rates that are cheaper than banks. It ensures safe and secure transfer and has global licensed partners. It provides a hassle-free service with a 100% online application and KYC process
- Money2India: ICICI bank-supported remittance service that supports money transfers to India only. This provides quicker service to ICICI bank users. It offers competitive exchange rates and 24/7 customer service.
- MoneyGram: It is another popularly used money transfer platform for international transactions. It provides value-for-money services with broader accessibility payment methods, credit card and debit cards, bank loans and online and in-person services.
We hope this blog has provided you with relevant information on what GST on Foreign Exchange in India is. To know about education loans, the loan application process, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
FAQs
Yes, the GST charges are levied to exchange one currency for another. Thus, if you exchange any foreign currency (purchase or sale) from any currency exchange providers or banks, you will have to pay GST in addition to the conversion fees charged by them.
GST on forex conversion means that the Goods and Services Tax applies when one type of currency is exchanged for another.
In India, the tax on foreign exchange transactions is primarily governed by the Goods and Services Tax (GST), which is levied at 18% on the taxable value of the transaction.
Fly Forex: Fly Forex is a new-age digital platform facilitating international money transfers.
Money2India: ICICI bank-supported remittance service that supports money transfers to India only.
MoneyGram: It is another popularly used money transfer platform for international transactions.
GST on foreign exchange is calculated depending on the amount of forex currency transactions. The calculation is divided into 3 slab categories and for each slab category, a different tax percentage is calculated.
Generally, GST is applicable to most forex transactions where the currency is exchanged for another. However, there may be exceptions or specific types of transactions exempt from GST, depending on local regulations.
