No service tax on remittances

Setting at rest concerns expressed in various quarters, the Central Board of Excise and Customs (CBEC), on Tuesday, clarified that remittances from abroad would not attract service tax.

Clarifying the issue through a circular following concerns over reports that a levy of 12 per cent could be imposed on inward remittances by Indians abroad under the new service tax regime from July 1, the CBEC said: “The matter has been examined, and it is clarified that there is no service tax per se on the amount of foreign currency remitted to India from overseas”.

The CBEC explained that in the negative list regime, ‘service’ has been defined in Clause (44) of Section 65B of the Finance Act, 1994, as amended, which excludes transaction in money. “As the amount of remittance comprises money, the activity does not comprise a ‘service’ and thus not subjected to service tax,” it said.

The circular further noted that in case any fee or conversion charges are levied for sending such money, they are also not liable to service tax as the person sending the money and the company conducting the remittance are located outside India.

“In terms of the Place of Provision of Services Rules, 2012, such services are deemed to be provided outside India and thus not liable to service tax,” it said.

The CBEC also clarified that even the Indian counterpart bank or financial institution, which charges the foreign bank or any other entity for the services provided at the receiving end, is not liable to service tax as the place of provision of such service shall be the location of the recipient of the service, that is, outside India.

It may be recalled that the chief ministers of Punjab and Kerala had taken up the issue of service tax on remittances with Prime Minister Manmohan Singh recently. Along with Tamil Nadu and Andhra Pradesh, the four states are among the largest beneficiaries of such foreign currency transfer from emigrants employed in the Gulf countries, Canada and the U.S.

According to World Bank data, India received remittances worth $64 billion in 2011, and emerged as the top recipient of such funds among developing countries.