GST Compliance on foreign currency exchange
Hi Reader, in this Article we will discuss about the GST compliance on foreign currency exchange. Foreign currency exchange is conversion of one country’s currency in another country’s currency. In India, Foreign Exchange Management Act, 1999 (FEMA) manage and responsible for foreign currency exchange transaction and Reserve Bank of India (RBI) act as the nodal authority.
In India only an authorised person deal in foreign currency note, coin and traveller’s cheque. These authorised persons also known as “Authorised Money changer”. Before dealing in foreign currency transaction, a money changer has to obtained License from Reserve Bank of India (RBI). Under Section 10 of FEMA, RBI authorised any person to be known as “Authorised Money Changer”.
Now, we will discuss the various GST Compliance on foreign currency exchange to be done by a money changer.
Whether conversion of currency is “Supply of Goods” or “Supply of Services”?
Meaning of Goods: – According to Section 2(52) of CGST Act, “Goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.
Meaning of Services: – According to Section 2(102), “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;
Since definition of Goods exclude money and securities as Goods and as well as definition of services also exclude the money and securities as services so money and securities are neither Good nor a service.
On the other hand, definition of service includes the conversion of currency to another form. Therefore, transaction of buying and selling of foreign currency undertaken by money changer is a service.
Money also define under Section 2(75) of CGST Act, According to section “money” means the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognized by the Reserve Bank of India when used as a consideration to exchange with Indian legal tender of another denomination or settle an obligation but shall not include any currency that is held for its numismatic value;
How to determine taxable value in case of Money Changer:-
According to Section 15 of CGST Act, value of supply of goods or service shall be transaction value. Transaction value is the price actually paid or payable for supply of goods or services subject to following dual condition as mention below: –
- Supplier and recipient of the supply are not related and
- Price is the sole consideration for the supply.
However, as per section 15(5) of CGST Act, value of certain supply which include exchange of foreign currency may be determined as per Rule 32.
Rule 32(2) prescribed a method of valuation of such services. According to Rule 32(2), A person who is engaged in purchase or sale of foreign currency including money changing may determine value of supply of services in the following manner.
A). If a currency exchange from Indian rupees or to Indian rupees then value of supply shall be difference of buying rate and selling rate of that currency multiply by total number of currencies. Reserve bank of India reference rate for that currency at that time should be taken as buying and selling rate.
Value of Supply = (Selling rate – Buying rate) x total number of currencies
RBI Reference Rate not available: – If reverse bank of India reference rate for a currency is not available then value shall be the one percent of the gross amount of India Rupees provided or received by person changing the money.
Value of Supply = 1 % of Gross India Rupees provided or received by person changing the money.
None of Currency Exchange is Indian Currency: – In case where neither of the currencies exchanged is in India Rupees i.e. exchange of one foreign currency exchanged by another foreign currency then in this case value of supply be equal to one percent of the lesser of the two amounts would have received by exchanging any of the two currencies into Indian Rupee. INR Exchange rate would be taken the reference rate provided by the Reserve Bank of India on that date.
For Example, if a person exchanged 100 Euro by 120 Dollar. At that time the exchange rate of Euro is 77 INR and Exchange rate of Dollar is 65. The value of Euro in INR is 7,700 and Value of Dollar in INR is 7,800. Since Euro value is lesser than the Dollar Value in INR so value of supply would be INR 77 (7,700 x 1%).
If a person exercise, the above option in a financial year then such option shall not be withdrawn during the remaining part of the financial year.
B). At the option of the supplier of services, the value in relation to the supply of foreign currency, including money changing, shall be deemed to be following –
| S.No | Particular | Value of Supply |
| 1. | Gross amount upto one Lakh Rupees | 1% of Gross amount subject to minimum amount of INR 250 |
| 2. | Gross amount exceeding one Lakh Rupees and upto Ten Lakh rupee and | 1,000 + .05 % of Gross amount |
| 3. | Gross amount exceeding Ten Lakh Rupees | 5,500 + .10% of Gross amount subject to maximum amount of INR 60,000. |
If a person exercise, the above option in a financial year then such option shall not be withdrawn during the remaining part of the financial year.
What to change CGST and SGST or IGST by money Changer:-
Place of Supply for Money Changer: – A registered person under GST must have knowledge about place of supply of its services or Goods since It plays a pivotal role in identifying whether a transaction is intra-state or inter-state or in other words whether CGST & SGST or IGST will be levied on any transaction.
According to Section 12 of IGST Act, Place of supply is to be determined as follow: –
Service Provided to registered person: – Location of Service Recipient
Service Provide to unregistered Person: – Location of Service Recipient if address available otherwise location of service provider.
| S.No. | Service Provider Location | Service Recipient registered | Address Available | Place of Supply |
| 1. | Delhi | Yes | Yes – Delhi | Delhi – Intra State |
| 2 | Mumbai | Yes | Yes – Delhi | Delhi – Inter State |
| 3 | Delhi | No | Yes – Delhi | Delhi – Intra State |
| 4 | Mumbai | No | Yes – Delhi | Delhi – Inter State |
| 5 | Delhi | No | No | Delhi – Intra State |
| 6 | Mumbai | No | No | Mumbai– Intra state |
Also See, “How to determine Inter State Supply or Intra State Supply Under GST
Also See, “How to determine place of supply of Services other than import and Export of Services.
All others GST Provision such as payment of taxes, Input tax credit, filling of returns etc. apply to money changer as they apply to any person registered under GST.
For any query you can write at taxhouseindia@gmail.com. Before making any decisions do consult with your professional or tax Consultant.
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