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February 21, 2025

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GST on Foreign Exchange Gain/Loss for Import of Services

GST Payable on Foreign Exchange Gain or Loss in Case of Import of Services

Where GST requires completion of tax ad valorem basis, where the tax is computed as a percentage of the Value of the supply of goods and services, in most cases, the invoice value will be the taxable Value.

With respect to the following specific businesses, the GST rules prescribe different rules for valuation. Nevertheless, these valuation methods are optional. The supplier may, at his option, opt for valuation based on the normal assessment rules as well. So, in this blog, we will discuss with you how GST on foreign exchange actually works!

Transactions involving the buying or selling of gst on international transactions

Method 1 for GST on Forex

Case 1: Where one of the Value gst on currency exchange is Indian Rupees

The Value of supply is the difference between the purchasing or selling rate of the Currency and the RBI reference rate for that Currency at the time of the exchange, which grew by the number of units of the Currency.

For example, on 20th September 2018, Mr. A converted USD 100 into INR 6,500 (INR 65 per USD). RBI's orientation rate at the time of exchange was Rs. 64.

Now the Value of supply will be: (65-64)*100 = INR 100. GST will be levied on INR 100.

If the RBI reference rate for a currency does not exist, the Value shall be 1% of the gross amount of INR provided or established by the person who is changing the money.

In the above example, if the RBI position rate is not available, then 1% of INR 6,200, i.e., INR 62, will be the Value of the supply of service, and GST will be levied on INR 62.

Case 2: Where neither of the currencies exchanged is the Indian Rupee

Let's assume that USD 9000 is transformed into 4500 POUNDS. The RBI reference rate at that time for USD was INR 63 per dollar, besides INR 82 per POUND.

1. In this case, neither of the monies exchanged is Indian Rupee. The Value of supply is determined to be 1% of the lowest amount when changing to INR. That is, 1.

2. US Dollar changed into Indian Rupees = 9000$ * Rs.63 = Rs.5,67,000

3. UK Pound converted into Indian Rupees = £4500 * Rs.82 = Rs.3,69,000

4. Value of taxable service = 1% * 3,69,000 = Rs.3,690/-

Method 2 for GST on Forex

This method may also be adopted, but it cannot be changed in the remaining part of the financial year as:

Example – Mr. A has exchanged US $ 10,000 for INR @ Rs.64 per US $. The Value of supply based on the second technique will be determined as follows: Value of

Currency exchange Rs.64* $10,000 = Rs.6,40,000 Upto Rs.1,00,000 =Rs. 1,000 For Rs.5,40,000 = Rs. 2,700 (0.50% * Rs.5,40,000)

1. Value of supply =Rs. 3,700

2. Service performed by an air travel agent.

3. The Value of stock of services in relation to booking of tickets for travel by air on condition that by an air travel agent, such as Yatra or MakeMyTrip, shall be calculated as follows:

a. Domestic travel: 5% of the Basic fare

b. International travel: 10% of the basic fare.

Note: "Basic fare" means the Value of airfare on which the directive is normally paid to the air travel agent by the airline.

Basic fare

1. Domestic bookings = Rs.1,00,000

2. Value of Supply = 5% * 1,00,000 = Rs.5,000

Basic fare

1. International bookings = Rs.3,00,000

2. Value of Supply = 10% * 3,00,000 = Rs.30,000

3. Total Value of Supply = Rs.5,000 + Rs.30,000 = Rs.35,000

Life Insurance Business

The Value of the supply of services in family member to life insurance business shall be computed as follows:

Policy with benefits of Risk Coverage and Investment Taxable Value = Gross premium – Amount allocated for investment or savings on behalf of the policyholder, if such

total is intimated to the policyholder at the time of collection of premium;

Example: If the gross premium is Rs.60,000, of which Rs. 55,000 is capitalized in funds, then the Value of supply shall be Rs. 5,000.

Single premium annuity policies Taxable Value = 10% of single premium charged from the policyholder; where allocation for investment/ savings is not intimated to the

policyholder.

In other cases, Taxable Value = 25 % of the premium charged from the policyholder in the first year and 12.5% of the premium charged from the policyholder in succeeding years. In the case of policies with only risk cover, the taxable Value shall be the entire premium charged from the policyholder.

Valuation of Supply when second-hand goods are accepted or sold

Where a person who is dealing in buying and selling of used goods, or goods subject to minor processing but which do not modification its nature, the taxable Value shall be computed as follows:

1. When ITC is not availed

2. Value = Selling Price – Purchase Price

3. If the Selling Price is less than the Purchase Price, ignore the negative Value

4. In case of second-hand goods from unregistered suppliers, CGST will be exempted

For example, A company dealing in buying and selling second-hand goods purchases a second-hand Maruti 800, 2012 make (Original Price: Rs.2 lakhs) for Rs.1 lakh and, after minor repairs, resells the same for Rs.1,23,000. The assessable Value for supply shall be Rs. 23,000.

When ITC is availed

The Taxable Value will be determined and grounded on the Normal Valuation method. This also includes buying and marketing on OLX, Quikr, and the like. Value of token,

voucher, a coupon, or a stamp (other than the postage stamp) The Value of such a token, coupon, voucher, or stamp shall be the monetary Price of such goods or

services. Example: If a Sodexo is worth Rs.1500, and the customer interactions the coupon for goods worth Rs.1500, the Value of supply under GST law resolve also be

Rs. 1,500

Value Of Supply Between Distinct Persons

The Value of taxable services transacted between distinct persons where the input tax credit is available shall be NIL. Different persons are those persons who are

required to obtain more than 1 GST registration as obtained or are required to obtain more than one registration. In spite of having a single PAN, they will be required to

have more than one GSTIN.

Example – Mr. Ram, based in Bangalore, has two branches of his business, in Delhi besides Bangalore. The establishment in Bangalore will require GSTIN, which is

different from that in Delhi. If the Bangalore branch supplies consultancy services to the Delhi branch, besides ITC having been availed of telephone charges, office rent,

and internet bills, then the value to the taxable supply for such service will be NIL since the ITC is obtainable in this case.

Conclusion

As a business operating in India, you are classically not required to charge GST on foreign exchange or gst on forex conversion. However, GST applies to services like

compliance handling and issuing FIRCs and BRCs in India.

Suggested Read: Filing Procedure Of Form FC-GPR

FAQS

1. Is GST applicable on foreign exchange gain or loss?

Separate exchange conversion charges for goods and services have been prescribed under the GST law in order to levy GST on the Value of supply converted into Indian Rupee. Foreign exchange gain and loss itself does not need any treatment under the GST law as the same is not a stock.

2. What is the effect of GST on imported goods and services?

Under the GST regime, both the importation of goods and/or services into India's territory would be treated as a supply of goods or amenities in the course of inter-state trade, attracting the levy of IGST. Hence, GST on imports will be treated as deemed inter-state materials and will be subject to GST.

3. What is the tax treatment of foreign currency gains and losses?

When a US taxpayer uses foreign Currency, gain or loss (referred to as "exchange gain or loss") may arise from fluctuations in the Value of the foreign Currency qualified to the US dollar. Gain or loss results because foreign Currency, unlike the US dollar, is treated as property for Federal income tax purposes.

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