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A money changer is involved in converting one currency to another
There can be 2 cases
- Conversion of foreign currency into Indian Currency or vice versa
- Conversion of one foreign currency into another.
Conversion of foreign currency into Indian Currency or vice versa
Rate used is
Difference of Buying Rate or Selling rate less RBI Reference Rate
If RBI Reference rate is not available, then value shall be 1% of Gross amount received or charged
Conversion of one foreign currency into another.
Following method is folloed
- Both currency are converted into Indian Rupees at RBI Reference rate
- Lower of the above is determined
- 1% of this lower is Value of taxable service
Note:-
Money changer also has the option to opt for abatement scheme
Exam Questions
Question 8
Mr. Ram who has entered into a roll over contract approached NDBC Bank for selling
US $ 35,000 at the rate of Rs. 60 per US $. RBI reference rate for US $ is Rs. 60.50 per US $ at
that time. However, rate of exchange declared by CBEC for the day is Rs. 61.50 per US$.
Calculate the value of taxable service.
Rule 2B of the Service Tax (Determination of Value) Rules, 2006 provides the manner of
determination of the value of taxable service so far as it pertains to purchase or sale of foreign
currency, including money changing. The value of service for a currency, when exchanged
from, or to, Indian Rupees (INR), 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.
Hence, the value of taxable service= (RBI reference rate for $ – Selling rate for $) × Total units
= Rs. (60.50 - 60) × 35,000
= Rs. 0.50 × 35,000
The taxable value shall be Rs. 17,500.
Question 9
Siddhi Ltd. exported some goods to Samson Inc. of USA. It received US $ 9,000 as
consideration for the same and sold the foreign currency @ Rs. 61 per US dollar. Compute the
value of taxable service under rule 2B of the Service Tax (Determination of Value) Rules, 2006
in the following cases:-
(a) RBI reference rate for US dollar at that time is Rs. 62 per US dollar.
(b) RBI reference rate for US dollars is not available.
What would be the value of taxable service if US $ 9,000 are converted into UK £ 4,500. RBI
reference rate at that time for US $ is Rs. 63 per US dollar and for UK £ is Rs. 101 per UK Pound.
(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.
Hence, in the given case, value of taxable service would be as follows: -
(RBI reference rate for $ – Selling rate for $) × Total units of US $
=Rs. (62-61) × 9,000
=Rs. 9,000
(b) If the RBI reference rate for a currency is not available, the value shall be 1% of the
gross amount of Indian Rupees provided or received, by the person changing the money.
Hence, in the given case, value of taxable service would be as follows:-
1% of Rs. (61 × 9,000)
=Rs. 5,490
In case neither of the currencies exchanged is Indian Rupee:
The value shall be equal to 1% of the lesser of the two amounts the person changing the
money would have received by converting any of the two currencies into Indian Rupee on that
day at the reference rate provided by RBI.
Hence, in the given case, value of taxable service would be 1% of the lower of the following: -
(a) US dollar converted into Indian rupees = $ 9,000 × Rs. 63 = Rs. 5,67,000
(b) UK pound converted into Indian rupees = £ 4,500× Rs. 101 = Rs. 4,54,500
Value of taxable service = 1% of Rs. 4,54,500 = Rs. 4,545
