CBEC (Central Board of Excise and Customs) Circular No. 163/14/2012 –ST dated July 10, 2012 clarified that there is no service tax per se on the amount of foreign currency remitted to India from overseas. This is a good news for NRIs as they will not be charged any service tax on money transfer services provided by banks or financial institutions in India or abroad for sending money in their NRE or NRO account or direct remittances.
When an NRI initiates inward remittance (transfer of funds to India), normally two institutions are involved – 1. bank/financial institution in his home country (located outside India) and 2. bank/financial institution in India. Lets understand service tax implications in case of both financial institutions.
1. Bank or financial institution located outside India:
As the person sending the money (NRI) and the company (financial institution) conducting the remittance are located outside India, in terms of the Place of Provision of Services Rules, 2012, such services are deemed to be provided outside India and thus not liable to service tax in case any fee or conversion charges are levied for sending such money.
2. Bank or financial institution in India:
As the location of the recipient of services (NRI) is outside India (in terms of Rule 3 of the Place of Provision of Services Rules, 2012), even the Indian counterpart bank or financial institution who charges the foreign bank or any other entity for the services provided at the receiving end, is not liable to service tax
In short, while service tax may not be material in deciding whether to transfer funds or not, it is a welcome step for NRIs as amount, however small, in your pocket is better than amount in government’s pocket.
Comments
S S Subramanian
In spite of this clarification, the website SBI, CitiBank and many online transfer companies mention service tax. The SBI website mentions as under. The weblink is given below.https://www.onlinesbi.com/nri/remittances/sbinri_rem.html.
“Service Tax for conversion of Foreign Currency to Indian Currency or vice-versa is payable to the Government of India, Ministry of Finance. The service tax rates with effect from 1st April, 2012 are as follows:
0.12% of the gross amount of currency exchanged for an amount of Rs 1,00,000, subject to minimum of Rs 30/-; and
Rs 120 and 0.06% of the gross amount of currency exchanged for an amount of rupees exceeding 1,00,000 and up to 10,00,000; and
Rs 660 and 0.012% of the gross amount of currency exchanged for an amount of rupees exceeding 10,00,000; subject to a maximum amount of Rs 6,000.
* Education cess @ 3% on service tax is also applicable for every transaction.
* The above charges structure is subject to change.
Even Citi Bank website mentions the service tax.
The following appears in the Timesofmoney Website.(https://www.timesofmoney.com/remittance/axisremit/secure/axisremitExchangeRate.jsp?partnerId=AXISREMIT&uiId=AXISREMIT&defaultMenu=exchangeRate.)
With Effect from 1st April 2012, Service tax will be recovered from the Transaction Amount, after conversion, at the following tax rates:
Upto INR 100,000 0.12% of the gross value or INR 30/- whichever is higher + 3% cess (education and higher education cess on service tax amount)
INR 100,001 to INR 1,000,000 INR 120 + 0.06% of the gross value + 3% cess (education and higher education cess on service tax amount)
Above INR 1,000,000 INR 660 + 0.012% of the gross value subject to a maximum of INR 6000 + 3% cess (education and higher education cess on service tax amount)
This means various banks are charging the service tax in spite of GOI notification no service tax is payable for inward remittances.
The above is in accordance with the Service Tax (Amendment) Rules, 2012 of the Government of India.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
There is no service tax on money transfer services but there is service tax on foreign exchange conversion services. If $1000 is transferred into FCNR account, there is no service tax. However, if $1000 is transferred to NRE/NRO account in INR, two services are involved – money transfer and currency conversion. While there is no service tax on money transfer, service tax as per table mentioned will be payable on conversion. Thanks for your comment. I hope this helps.
Sujeeth
“While there is no service tax on money transfer, service tax as per table mentioned will be payable on conversion” – Then what is the point in using NRE account ?
Other banks like money2india.com , click2remit.com are providing transaction free service and credit to domestic savings account. Of course, there is TDS applicable for the interest gained, exceeding 100,000 INR. However, TDS deduction will be very less compared to 3 % as educational cess.
Correct me if I am wrong.
Best
Sujeeth Pakala
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
It has nothing to do with NRO or NRE or Savings or Current Account. Whether money transferred to any account by any agency, the service tax on conversion from one currency to another will be applicable. Whether they tell you or not, show separately or not or include in the conversion rate itself, they will collect and pay the service tax as per the table, which is very minimal. Also, the 3% is not on the total amount but only on the tax amount i.e. For Rs. 100,000, the total tax would be 123.60 instead of 120.
If you invest or transfer your funds in NRO, in addition to service tax, TDS would be deducted @ 30.90% if you do not have TRC (Tax Residency Certificate). Transfer to NRE is the best option as no income tax and full repatriability of funds without any limit. Thanks.
Poonam
I came to Finland on Jan 18 2014 and would be going back to India on March 20th 2015. For the Indian FY 2013 to 2014, i have already paid income taxes in India and Finland.
I have recently transferred ‘x’ lakh to my Indian regular savings account in Jan 2015.
I have heard that it would incur some taxes. Is that true ? how much % ? Is the tax calculated on the money transferred or on the interest earned ?
I believe i am not tax resident in India for FY 2014-2015. kindly confirm this as well
I wasn’t aware of NRE account so i transferred to normal savings account in India.
Waiting for reply. Any help would be really appreciated !
Many thanks Poonam
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
There is no tax on transfer of funds. Tax is only on Income. As you were an NRI during 2014-15, your foreign income is not taxable in India. The money transferred to India, if invested in FD or any other securities, you would have to pay tax on the income (e.g. interest). If you are coming back to India in March 2015, you would be resident for 2015-16 and won’t be able to keep NRE account and would have to pay tax on interest income. Thanks.
Poonam
Thanks Jigar Patel for the prompt response.
But my question is since i have transferred money to regualr savings account instead of NRE account . Do i need to pay any additional tax ? if yes what sort of tax ?
would that tax be on the interest earned in the savings account or something else ?
btw – your forum is very helpful .i would recommend it to my friends 🙂
Regards
Poonam
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
There is no additional tax except that the interest on NRE account is exempt from tax; whereas the interest on saving account is taxable under the Income Tax Act. As mentioned, tax would be only on the interest income. Thanks.
Poonam
Thanks alot again for your response.
Just one more additional query :
I will have NRI status for the FY 2014-2015 i.e my foreign is not taxable in India.
As you said interest on the saving account is taxable , so my question is Let’s say if i earn a interest of 30,000 INR in FY 14-15 for my savings in savings account in indian bank.
So as per Income tax act, interest up to 10,000 is not taxable ,so i need to pay tax on 20,000 INR . Is that correct understanding ?
Also if i dont have any other income in fy 14-15 in India except the interest amount (20000), would i still be taxable since any income up to 2.5 lakh is tax free . Is that right ?
Regards
Poonam
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. Yes, you are eligible for savings bank account interest deduction upto Rs. 10,000. This does not apply to FD interest. Also, as an NRI, 30.9% TDS on the interest from NRO account is deducted.
2. If you do not have any other income, your total income would be less than 250,000 (basic exemption limit) so you don’t have to pay any taxes in India and would be able to claim the TDS deducted as income tax refund. Thanks.