Foreign Exchange conversion services enable individuals to convert one currency into either another foreign currency or a domestic currency. Let’s learn about GST on Foreign Exchange Conversion Services in India through this article.
How to Calculate GST on Foreign Exchange Conversion in India
When conducting foreign currency exchanges (whether buying or selling) in India, the service provider will assess the value of the transaction.
The GST on Foreign Exchange Conversion will be determined according to the assessed transaction value.
There are two methods for determining the transaction value for foreign exchange conversion:
- Calculation Method as specified in Rule 32(2)(a) of CGST Rule 2017.
- Slab-based Method as outlined in Rule 32(2)(b) of CGST Rule 2017.
Method 1: Calculation According to Rule 32(2)(a) of CGST Rule 2017
Case 1: If one of the currencies exchanged is Indian Currency (INR)
Sub-case 1: When RBI Reference Rate is Available
The RBI reference rate establishes the currency value differential. If the RBI reference rate is available, the value of the foreign currency exchange is determined as follows:
- For buying foreign currency: Value = (RBI Reference Rate – Buying Rate) * Total units of currency
- For selling foreign currency: Value = (Selling Rate – RBI Reference Rate) * Total units of currency
Sub-case 2: When RBI Reference Rate is Unavailable
If the RBI reference rate is unavailable for a specific currency conversion, the value of supply is calculated as 1% of the Gross Amount (INR) received or supplied in the transaction.
For example, if Mr. Raghav is selling or buying 100 USD @ 1 USD = 70 INR, the gross amount he receives/sells is INR 7000. Therefore, the value of supply is 1% of 7000 = INR 70, with GST on this supply being 12.6 Rs.
Case 2: When both exchanged currencies are foreign currencies
In this case, the value of supply is 1% of the lesser of the final amounts when both currencies are converted to INR.
For example, if Mr. Raghav wants to sell 100 USD for UK Pounds at a rate of 0.82 Pounds per USD, the value would be 82 Pounds.
When both currencies are converted into INR, the value of taxable supply is 1% of the lesser amount, i.e., 1% of 7000 INR = Rs. 70.
The GST on this supply is 12.60 Rs.
Method 2: Slab-Based Calculation under Rule 32(2)(b) of CGST Rule 2017
Alternatively, suppliers or service providers can opt for this GST computation method based on Foreign Exchange Conversion.
Under this method, the Value of Supply is determined using predefined rules.
If you choose this method, you cannot switch to another method for at least one financial year.
| Serial Number | Gross Currency Exchange Amount | Value of Supply Formula | Value of Supply Calculation |
| 1 | Up to 1,00,000 Rupees | 1% of the gross currency exchange amount | Whichever is higher (A) or (B) |
| 2 | Exceeding 1,00,000 up to 10,00,000 Rupees | 0.50% of (total currency exchange amount minus 1,00,000 Rupees) | A + B |
| 3 | Exceeding 10,00,000 Rupees | 0.10% of (total currency exchange amount minus 10,00,000 Rupees) + Rs. 5,500 | Whichever is lower (A) or (B) |
For example, if the gross amount is Rs. 5,000, the value of supply will be higher of 1% of 5,000 (i.e., Rs. 50) and Rs. 250, resulting in a value of supply of Rs. 250.
Start Currency Exchange Business in India: Advantages & Scope
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