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48. FOREIGN EXCHANGE BROKING SERVICES (A) Date of Introduction: w.e.f. 01.07.2003
(Notification No. 7/2003-S.T., dated 20.06.2003)
(B) Definition and scope of service: “Taxable Service” means
any service provided or to be provided to any person, by a foreign exchange
broker, including an authorised dealer in foreign
exchange or an authorised money changer, other than
a banking company or a financial institution including a non-banking
financial company or any other body corporate or commercial concern referred
to in sub clause (zm); [Section 65 (105) (zzk) of
Finance Act, 1994 as amended] "Authorised
Dealer of Foreign Exchange" has the meaning assigned to "authorised person" in clause (c) of Section 2 of the
Foreign Exchange Management Act, 1999 (42 of 1999); [Section
65 (8) of Finance Act, 1994 as amended] “Banking and Other Financial Services” means — (a) the
following services provided by a banking company or a financial institution
including a non-banking financial company or any other body corporate or
[commercial concern]*, namely :— (i)
financial leasing services including equipment leasing and hire-purchase; [‘Explanation.—For the
purposes of this item, “financial leasing” means a lease transaction where— (i) contract for lease is entered into between two
parties for leasing of a specific
asset; (ii) such
contract is for use and occupation of the asset by the lessee; (iii) the
lease payment is calculated so as to cover the full cost of the asset
together with the interest charges; and (iv) the
lessee is entitled to own, or has the option to own, the asset at the end of
the lease period after making the
lease payment;’;]* (ii) Omitted (iii)
merchant banking services; (iv)
securities and foreign exchange (forex) broking,
and purchase or sale of foreign currency, including money changing; (v)
asset management including
portfolio management, all forms of fund management, pension fund management,
custodial, depository and trust services [x x x]1 , (vi) advisory and other auxiliary
financial services including investment and portfolio research and advice,
advice on mergers and acquisitions and advice on corporate restructuring and
strategy; (vii)provision
and transfer of information and data processing; and (viii)
banker to an issue services; and (ix)
other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, transfer
of money including telegraphic transfer, mail transfer and electronic
transfer, providing bank guarantee, overdraft facility, bill discounting
facility, safe deposit locker, safe vaults, operation of bank accounts;”; (b) foreign exchange broking and purchase or sale
of foreign currency including money changing
provided by a foreign exchange broker or and authorised
dealer in foreign exchange or an authorised money
changer, other than those covered under sub-clause (a); [Explanation.
– For the purposes of this clause, it is hereby declared that “purchase or
sale of foreign currency, including money changing” includes purchase or sale
of foreign currency, whether or not the consideration for such purchase or
sale, as the case may be, is specified separately;] [Section 65 (12) of Finance Act, 1994 as
amended] (C)
Rate of Tax & Accounting Code:
( Rate
of tax is effective from 24.02.2009.) ( D ) Classification of Taxable Services: (1)
The classification of taxable services shall be determined according
to the terms of the sub-clauses (105) of section 65; (2) When for any reason , a taxable service
is prima facie, classifiable under two
or more sub-clauses of clause (105) of section 65, classification
shall be effected as follows :- (a)
the sub-clause which provides the most specific description shall be
preferred to sub-clauses providing a more general description; (b)
composite services consisting of a combination of different services which
cannot be classified in the manner specified in clause (a), shall be
classified as if they consisted of a service which gives them their essential
character, in so far as this criterion is applicable; (c)
when a service cannot be classified in the manner
specified in clause (a) or clause (b), it shall be classified under the
sub-clause which occurs first among the sub-clauses which equally merits
consideration. ( Sec.65A of Finance Act,1994) (E) Valuation of
taxable services for charging Service tax (1) Service tax chargeable on any taxable
service with reference to its value shall,— (i) in a case where the provision of service is for a
consideration in money, be the gross amount charged by the service provider
for such service provided or to be provided by him; (ii)
in a case where the provision of service is for a consideration not wholly or
partly consisting of money, be such amount in money, with the addition of
service tax charged, is equivalent to the consideration; (iii)
in a case where the provision of service is for a
consideration which is not ascertainable, be the amount as may be determined
in the prescribed manner. (2)
Where the gross amount charged by a service provider, for the service
provided or to be provided is inclusive of service tax payable, the value of
such taxable service shall be such amount as, with the addition of tax
payable, is equal to the gross amount charged. (3) The gross
amount charged for the taxable service shall include any amount received
towards the taxable service before, during or after provision of such
service. (4)
Subject to the provisions of sub-sections (1), (2) and (3), the value shall
be determined in such manner as may be prescribed. Explanation.—For
the purposes of this section,— (a)
“consideration” includes any amount that is payable for the taxable services
provided or to be provided; (b)
“money” includes any currency, cheque, promissory
note, letter of credit, draft, pay order, travellers
cheque, money order, postal remittance and other
similar instruments but does not include currency that is held for its
numismatic value; (c)
“gross amount charged” includes payment by cheque,
credit card, deduction from account and any form of payment by issue of
credit notes or debit notes and ‘book adjustment, and any amount credited or
debited, as the case may be, to any account, whether called “Suspense
account” or by any other name, in the books of account of a person liable to
pay service tax, where the transaction of taxable service is with any
associated enterprise. ( Sec.67 of Finance Act,1994) Inclusion in or Exclusion from value of
certain expenditure or cost: (1)
Where any expenditure or costs are incurred by the service provider in
the course of providing taxable service, all such expenditure or costs shall
be treated as consideration for the taxable service provided or to be
provided and shall be included in the value for the purpose of charging
service tax on the said service. [Rule
5(1) of Service Tax (Determination of Value) Rules,2006)] (2)
The expenditure or costs incurred by the service provider as a pure
agent of the recipient of service, shall be excluded from the value of
the taxable service if all the following conditions are satisfied, namely:- (i) the
service provider acts as a pure agent of the recipient of service when he
makes payment to third party for the goods or services procured; (ii) the
recipient of service receives and uses the goods or services so procured by
the service provider in his capacity as pure agent of the recipient of
service; (iii) the
recipient of service is liable to make payment to the third party; (iv) the
recipient of service authorizes the service provider to make payment on his
behalf; (v) the
recipient of service knows that the goods and services for which payment has
been made by the service provider shall be provided by the third
party; (vi) the
payment made by the service provider on behalf of the recipient of service
has been separately indicated in the invoice issued by the service provider
to the recipient of service; (vii) the
service provider recovers from the recipient of service only such amount as
has been paid by him to the third party; and (viii)
the goods
or services procured by the service provider from the third party as a pure
agent of the recipient of service are in addition to the services he provides
on his own account. [Rule 5(2) of Service Tax
(Determination of Value) Rules,2006)] (F) Clarifications issued by the Board/
Ministry: Master
Circular No.96/7/2007-ST, dated 23-08-2007 relevant to this Service
Foreign Exchange Broker Service – Budget
2008-09 changes. – (1) Foreign Exchange (Forex)
broking service is leviable to service tax. foreign exchange brokers provide services as an
intermediary in relation to purchase or sale of foreign currency on a
commissioner/brokerage basis. Purchase
or sale of foreign currency is undertaken by foreign exchange broker and also
by persons authorized under Foreign Exchange Management Act, 1999 to deal in
foreign exchange and having licence issued by
RBI. Such authorized persons are known
as money changers or authorized dealers of foreign exchange. Services in relation to
purchase or sale of foreign currency is, therefore, provided by
foreign exchange broker, money changer and also authorized dealers of foreign
exchange. (2)
Foreign exchange broker indicates the consideration for the services provided
(commission) explicitly. Whereas money
changers/authorised dealers of foreign exchange
providing same services may not necessarily indicate the consideration
explicitly. (3)
Section 65(12) is being amended so as to levy service tax on purchase or sale
of foreign currency; including money changing, provided by an authorized
dealer in foreign currency or an authorised money
changer, in addition to a foreign exchange broker. An explanation is being added to the effect
that explicit mention of the consideration for the services provided in
relation to purchase or sale of foreign currency is not relevant for the
purpose of levy of service tax.
Taxable services [sections 65(105)(zzk) and 65(105)(zm)] are being
amended suitably. With these
amendments, services provided in relation to purchase or sale of foreign
currency by a foreign exchange broker, money changer and authorised
dealer of foreign exchange shall also be leviable
to service tax. (4) To
enable determination of taxable value, where the consideration for the service
provided in relation to purchase or sale of foreign currency is not
explicitly indicated by the service provider, a method under rule 6(7B) of
the Service Tax Rules, 1994 shall be prescribed. As per this provision, the service provider
has the option to pay service tax calculated at the rate of 0.25% of the
gross amount of currency exchanged. Illustration : Buying rate : US$1= Rs.38 / / Selling rate US$1= Rs.40 (i)
Purchase of US$100 by the service provider : Gross amount of currency
exchanged in rupees = Rs.3800 (Rs.38x100) Service tax payable = Rs.9.50 (0.25x3800) (ii)
Sale of US$100 by the service provider : Gross amount of currency
exchanged in rupees = Rs.4000 (Rs.40x100)
Service tax payable = Rs.10 (0.25%x4000) [ vide M.F.(D.R) letter D.O.F.No.334/1/2008-TRU dated 29/2/2008.] Budget
2009-10 changes. – Sale and purchase of foreign exchange/money
changing were made taxable in the past.
The inter-bank transactions of purchase or sale of foreign currency,
when undertaken by scheduled banks, is being exempted. (Notification No.19/2009-S.T, dated
7-7-2009 refers). Scheduled banks
under this notification mean the banks, which are included in the Second Schedule
of the Reserve Bank of India Act, 1934. [ vide M.F.(D.R) letter D.O.F.No.334/13/2009-TRU dated 7/7/2009.] (G)
Exemption & Exclusion: 1.
Exemption to Small Scale Service Providers: In
exercise of the powers conferred by sub-section (1) of section 93 of the
Finance Act, 1994 (32 of 1994) (hereinafter referred to as the said Finance
Act), the Central Government, on being satisfied that it is necessary in the
public interest so to do, hereby exempts taxable services of aggregate value
not exceeding Ten lakh*
rupees in any financial year from the whole of the service tax leviable thereon under section 66 of the said Finance
Act: Provided that nothing contained in this notification
shall apply to,- (i) taxable services provided by a person under a brand
name or trade name, whether registered or not, of another person; or (ii) such
value of taxable services in respect of which service tax shall be paid by
such person and in such manner as specified under sub-section (2) of section
68 of the said Finance Act read with Service Tax Rules,1994. 2. The exemption contained in this notification shall
apply subject to the following conditions, namely:- (i) the provider of taxable service has the option not to
avail the exemption contained in this notification and pay service tax on the
taxable services provided by him and such option, once exercised in a
financial year, shall not be withdrawn during the remaining part of such
financial year; (ii) the
provider of taxable service shall not avail the CENVAT credit of service tax
paid on any input services, under rule 3 or rule 13 of the CENVAT Credit
Rules, 2004 (herein after referred to as the said rules), used for providing
the said taxable service, for which exemption from payment of service tax
under this notification is availed of; (iii) the
provider of taxable service shall not avail the CENVAT credit under rule 3 of
the said rules, on capital goods received in the premises of provider of such
taxable service during the period in which the service provider avails
exemption from payment of service tax under this notification; (iv) the
provider of taxable service shall avail the CENVAT credit only on such inputs
or input services received, on or after the date on which the service
provider starts paying service tax, and used for the provision of taxable
services for which service tax is payable; (v) the
provider of taxable service who starts availing exemption under this
notification shall be required to pay an amount equivalent to the CENVAT
credit taken by him, if any, in respect of such inputs lying in stock or in
process on the date on which the provider of taxable service starts availing
exemption under this notification; (vi) the
balance of CENVAT credit lying unutilised in the
account of the taxable service provider after deducting the amount referred
to in sub-paragraph (v), if any, shall not be utilised
in terms of provision under sub-rule (4) of rule 3 of the said rules and
shall lapse on the day such service provider starts availing the exemption
under this notification; (vii) where a
taxable service provider provides one or more taxable services from one or
more premises, the exemption under this notification shall apply to the
aggregate value of all such taxable services and from all such premises and
not separately for each premises or each services; and (viii) the
aggregate value of taxable services rendered by a provider of taxable service
from one or more premises, does not exceed rupees *ten lakhs in the preceding financial
year. 3. For the purposes of determining aggregate value not
exceeding ten*lakh
rupees, to avail exemption under this notification, in relation to taxable
service provided by a goods transport agency, the payment received towards
the gross amount charged by such goods transport agency under section 67 for
which the person liable for paying service tax is as specified under
subsection (2) of section 68 of the said Finance Act read with Service Tax
Rules, 1994, shall not be taken into account. Explanation.- For the purposes of
this notification,- (A) “brand name” or
“trade name” means a brand name or a trade name, whether registered or not,
that is to say, a name or a mark, such as symbol, monogram, logo, label,
signature, or invented word or writing which is used in relation to such
specified services for the purpose of indicating, or so as to indicate a
connection in the course of trade between such specified services and some
person using such name or mark with or without any indication of the identity
of that person; (B) “aggregate
value not exceeding *ten lakh rupees means the sum total of first consecutive
payments received during a financial year towards the gross amount, as
prescribed under section 67 of the said Finance Act, charged by the service
provider towards taxable services till the aggregate amount of such payments is
equal to ten lakh rupees but does not include
payments received towards such gross amount which are exempt from whole of
service tax leviable thereon under section 66 of
the said Finance Act under any other notification. 4. This notification shall come into force on the 1st
day of April, 2005. [Notification No. 6/2005-ST, dated
1-3-2005. *Amended by Notfn.No. 8/2008-ST dated
01.03.2008] 2. Services
to UN Agencies Services
provided to United Nations or an International Organizations are exempt. [Notification
No. 16/2002-ST, dated 2-8-2002] 3.
Export of service: Any service which is taxable under clause
105 of Section 65 may be exported without payment of service tax. ( Rule 4
of Export of Services Rules,2005) 4.
Exemption to services provided to a developer of SEZ or a unit of SEZ:
Exempts
the taxable services specified in clause (105) of section 65 of the said
Finance Act, which are provided in relation to the authorized operations in a
Special Economic Zone, and received by a developer or units of a Special
Economic Zone, whether or not the said taxable
services are provided inside the Special Economic Zone,
from the whole of the service tax leviable
thereon under section 66 of the said Finance Act subject to certain
conditions. ( Refer notification for details) {
Notification No. 09/2009ST dated 03.03.2009 (Prior to 03.03.2009
Notfn.No4/2004-ST dated 31.03.2004)} 5.
Exemption to value of goods & material sold by service
provider: In exercise of the
powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the
Central Government, being satisfied that it is necessary in the public
interest so to do, hereby exempts so much of the value of all the taxable
services, as is equal to the value of goods and materials sold by the service
provider to the recipient of service, from the service tax leviable thereon under section (66) of the said Act,
subject to condition that there is documentary proof specifically indicating
the value of the said goods and materials. (Notification
No. 12/2003-ST dated 20.06.2003 effective from 01.07.2003) 6.
Exemption to taxable services provided by TBI and STEP: All taxable
services, provided by a Technology Business Incubator (TBI) or a Science and Technology
Entrepreneurship Park (STEP) recognized by the National Science and technology Entrepreneurship Development Board (NSTEDB)
of the Department of Science and Technology, Govt. of India from the whole of the service tax leviable thereon
subject tio certain conditions and procedures. (
Refer notification for details) (Notification
No.09/2007 ST dated 01.03.2007) 7.
Exemption to taxable services provided by entrepreneurs located within
the premises of TBI or STEP:
All taxable services, provided by an entrepreneur located within the premises of a Technology
Business Incubator (TBI) or a Science
and Technology Entrepreneurship Park (STEP) recognized by the National Science and technology Entrepreneurship Development Board (NSTEDB)
of the Department of Science and Technology, Govt. of India from the whole of the service tax leviable thereon
subject to certain conditions and
procedures. ( Refer notification for details) (Notification
No.10/2007 ST dated 01.03.2007) 8.
Exemption to services provided to Foreign Diplomatic Missions or
Consular Post in India: All
services provided by any person, for the official use of a Foreign Diplomatic
Mission or Consular Post in India are exempted from service tax subject to
certain conditions and procedures. (Refer notification for details) (Notification
No. 33/2007-ST dated 23.05.2007) 9.
Exemption to services provided for personal use of a family member of
Diplomatic Agent or Career Consular Officers posted in Foreign Diplomatic
Mission/Consular Post in India: All
services provided by any person, for personal use of family member of
Diplomatic Agents or Career Consular officers posted in a Foreign Diplomatic Mission or Consular Post in India are exempted from
service tax subject to certain conditions and procedures. (Refer notification
for details) (Notification
No. 34/2007-ST dated 23.05.2007) ***************** |