CBEC (Central Board of Excise and Customs) Circular No. 163/14/2012 –ST dated July 10, 2012 clarified that there is no service tax per se on the amount of foreign currency remitted to India from overseas. This is a good news for NRIs as they will not be charged any service tax on money transfer services provided by banks or financial institutions in India or abroad for sending money in their NRE or NRO account or direct remittances.
When an NRI initiates inward remittance (transfer of funds to India), normally two institutions are involved – 1. bank/financial institution in his home country (located outside India) and 2. bank/financial institution in India. Lets understand service tax implications in case of both financial institutions.
1. Bank or financial institution located outside India:
As the person sending the money (NRI) and the company (financial institution) 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 in case any fee or conversion charges are levied for sending such money.
2. Bank or financial institution in India:
As the location of the recipient of services (NRI) is outside India (in terms of Rule 3 of the Place of Provision of Services Rules, 2012), even the Indian counterpart bank or financial institution who charges the foreign bank or any other entity for the services provided at the receiving end, is not liable to service tax
In short, while service tax may not be material in deciding whether to transfer funds or not, it is a welcome step for NRIs as amount, however small, in your pocket is better than amount in government’s pocket.