Thursday, November 27, 2014

India begins levying service tax on remittance fee from abroad

India has started levying a service tax on “fees or commission” charged by banks and financial institutions for facilitating remittances from abroad.

This may slightly increase the cost of remittance to India, which will mainly affect the majority of low-income Indian expatriates in the UAE and other Gulf countries who remit money every month to their dependants back home.

However, it will not pose a big burden on expatriates as the tax is imposed only on the “fee or commission charged by banks for facilitating remittances” and not on the actual remittance.

The remittance fee from the UAE to India costs up to Dh20. A part of this amount is paid to the agents in India, which will attract the new service tax. As Gulf News reported on October 16, a circular issued by India’s Central Board of Excise and Customs (CBEC) on October 14 imposed a 12.36 per cent service tax on the “fee or commission” charged for facilitating remittances from abroad. But it was not clear whether the government would start levying it with immediate effect.

The agents in India who facilitate remittances from abroad have recently received notice from the Indian tax authorities to pay the service tax, effective October 15, a senior executive of the remittance service industry told on Tuesday.

“Although the fee or commission charged by agents in India [banks and other financial institutions in India] varies, it may be between Dh5 and Dh10 for remittances from the UAE,” said Y. Sudhir Kumar Shetty, vice chairman of Foreign Exchange and Remittance Group (FERG), an official platform of the companies engaged in the business of money exchange and remittances in the UAE.

Considering the fact that Dh10 is the maximum fee paid to agents in India, the 12.36 per cent tax may go up to Dh1.24 (Rs20.9), Shetty, who is also the COO of UAE Exchange, said.

Although it is a small amount for a single transaction, an agent doing thousands of transactions has to pay a huge amount as tax which may be passed on to the customers, he said.

A prominent financial consultant in India said although the tax is a small amount, it is unjustified as Non Resident Indians (NRIs) deserve incentives for bringing foreign exchange into India.