Value of supply of services in relation to purchase or sale of foreign currency, including money changing
Rule 6(2) of draft GST Valuation Rules provides that the value of supply of services in relation to purchase or sale of foreign currency, including money changing, shall be determined by the supplier of service in the following manner: –
(a) For a currency, when exchanged from, or to, Indian Rupees (INR), the value shall be equal to the difference in the buying rate or the selling rate, as the case may be, and the Reserve Bank of India (RBI) reference rate for that currency at that time, multiplied by the total units of currency.
(b) At the option of supplier of services, the value in relation to supply of foreign currency, including money changing, shall be deemed to be
(i) one per cent. of the gross amount of currency exchanged for an amount up to one lakh rupees, subject to a minimum amount of two hundred and fifty rupees;
(ii) one thousand rupees and half of a per cent. of the gross amount of currency exchanged for an amount exceeding one lakh rupees and up to ten lakh rupees; and
(iii) five thousand rupees and one tenth of a per cent. of the gross amount of currency exchanged for an amount exceeding ten lakh rupees, subject to maximum amount of sixty thousand rupees
Issue
The Rule has no provision for an authorised foreign exchange dealer or money changer to pay tax on commission earned and hence actual ‘transaction value’ is rejected. The basic principle of GST levy is to accept the transaction value as long as the transaction is at arms’ length and applying the service tax valuation rules here deviates from the basic GST principles.
Suggestion
It is suggested that there be made a provision for an authorised foreign exchange dealer or money changer to pay tax on commission earned being the actual transaction value
Source ICAI Suggestions on GST Rules Submitted to Govt of India