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No service tax to be levied on NRI remittances: FinMin
Sanjeev Sharma/TNS

New Delhi, July 10
The Finance Ministry today clarified that no service tax would be levied on NRI remittances from overseas.

The clarification by the Central Board of Excise and Customs (CBEC), which functions under the Finance Ministry, follows concerns over reports that there was a move to levy 12 per cent tax on money sent back home by Indians abroad under the changed service tax regime from July 1.

The CBEC said in a circular “that 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”. In the negative list regime, “service” excludes transaction in money. As the amount of remittance comprises money, the activity does not comprise a “service” and is not subjected to service tax, the circular clarifies.

It further added 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. Such services are deemed to be provided outside India and thus not liable to service tax”.

It has been further clarified that even the Indian counterpart bank or financial institution which charges the foreign bank for the services provided at the receiving end, is not liable to service tax as the place of provision of such service is outside India.

The clarification will alleviate concerns of NRIs as India is one of the top recipient of remittances ($64 billion in 2011), according to the World Bank data. Given the dire need for dollar at a time when current account deficit is high and Rupee is under pressure, any move to levy service tax on NRI remittances would have been disastrous.

CMs of Punjab and Kerala, which are among the states receiving the largest remittances from NRIs, had taken up the matter with Prime Minister Manmohan Singh.

M Rafeeque Ahmed, president, Federation of Indian Export Organisations (FIEO), said that towards addressing the trade deficit, remittances were the single largest source of unconditional flow of foreign exchange into India, according to estimates by the World Bank. Given the slowdown and declining levels of foreign exchange, service tax could only act as a deterrent to precious incoming foreign exchange, he added.

He said the waiver of service tax on the same would ensure that this stable source of foreign exchange would continue to maintain the delicate balance of payments position of India at this moment of global crisis.