GST Implications on Foreign Exchange: Here’s What International Students Must Know

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In 2016, VAT and other Service Taxes were charged on acquiring all items. 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. One of the most commonly asked questions on currency exchange was whether GST is charged on currency exchange 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. 

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 levied is dependent on the exact specific country and the type of foreign exchange.

What is Foreign Exchange?

Foreign Exchange (Forex) is referred to as the conversion of two different currencies, depending on the economic climate of the respective countries. The currency of a country is valued as per 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 other.

How to Calculate GST on Foreign Exchange?

GST on foreign exchange done via 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. 

Is GST 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 ExchangeGST Charges
Up to INR 1 lakhs1% 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 lakhsINR 1000 + 0.5% of the gross amount of currency exchanged
Above INR 10 lakhsINR 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. 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

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. 

Also Read: Travelling to London for studies? Read about Currency Exchange in London and get complete information about the same.

FAQs

What is GST on forex conversion?

GST on forex conversion refers to the Goods and Services Tax applied when the one type of currency is exchanged to another.

What is Forex?

Foreign Exchange (Forex) is the conversion of two different currencies, depending on the economic climate of the respective countries. The currency of a country is valued as per the laws of supply and demand in a free economy.

What are the factors affecting Forex?

The currency value is dependent on marketplaces related to trade, tourism, investment and geopolitical risk. 

What are the top money transfer platforms?

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.

Is GST charged on currency exchange?

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.

How is GST calculated on Foreign Exchange?

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.

GST applicable on all types of forex transactions?

Generally, GST is applicable to most forex transactions where currency is exchanged for another. However, there may be exceptions or specific types of transactions exempt from GST, depending on local regulations.

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.

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About Charvi Khaneja

Charvi Khaneja is a proficient writer with a passion for simplifying complex financial concepts and empowering individuals to make informed decisions about their money. She writes about the finace perspective with relation to study abroad.

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