GST on Foreign Exchange in India

Foreign exchange transactions are a very important part of international trade, travel, and cross-border services. In India, GST is not charged on the foreign currency, but on the service element of currency conversion, remittances, or forex-related services offered by banks and authorised dealers. With a standard GST rate of 18% and specific valuation methods prescribed by law, it is important to know the GST on foreign exchange transactions, both for businesses and individuals.

It is important to have a clear knowledge of GST on forex services, exemptions related to exports, and documents required for compliance and to prevent unnecessary tax outflow.

What Is GST on Foreign Exchange?

The GST on Foreign exchange is applied on the service components of foreign exchange that are used in currency conversion. It does not apply to the currency itself but to the margin or fee that banks, authorised dealers, or forex service providers charge to make the transaction.

Simply put, the GST is levied on the forex service, and not on the overall value of the transaction, when you buy or sell, or convert foreign currency.

When GST applies to Forex Transactions.

GST is applicable in the following common situations of forex:

• Currency exchange via banks or authorised money changers.
• Conversion of foreign currency for international trade
• Travel cards or loading or reloading of forex.
• International remittances involve conversion charges.
• Forward contracts, hedging transactions (service portion).

Nonetheless, under GST, pure export of services is zero-rated, as long as all the conditions are followed.

GST Rates for Foreign Exchange Services

In India, foreign currency exchange services are subject to 18% GST, but this tax isn’t levied on the total value of the transaction. It is only applied to the service component or margin earned by banks, authorised dealers, or money changers.

To calculate this taxable value, the GST law allows two valuation methods prescribed under Rule 32 of the CGST Rules, i.e., the calculation-based method and the slab-based method

Calculation Method 1: RBI Reference Rate Method

The value using this method is calculated by the difference between the rate of transaction and the official RBI reference rate. Banks and authorised dealers make use of it most often because it is accurate and transparent.

Calculation of Taxable Value is:

• The variance between the purchase or sales rate that the bank/forex dealer is offering, and
• The RBI reference rate of that currency on that day.

This difference is then subjected to GST of 18%.

Example:

When a bank sells USD at 83.50 when the RBI reference rate is 83.00, it means that the taxable value is 0.50 USD. This 0.50 margin only charges GST.

Calculation Method 2: Slab-Based Method

In the absence of the RBI reference rate, a fixed slab-based valuation system is applied to find out the taxable value.

After the taxable value is calculated, the 18% GST rate is charged accordingly. This is a common method used in retail forex trading, including travel exchange and forex card services transactions.

Zero-Rated Supplies: GST on Export of Services

In the GST system in India, export of services is considered a zero-rated supply, and this has provided a massive tax advantage to the eligible exporters. Zero-rating means that the taxes are not applied to international trade and helps Indian businesses to grow in the global market.

This means:

• There is no GST payable on the value of exported services, and
• An exporter is entitled to a GST Refund that was paid on input purchases and costs.

To qualify as an export of services in the GST law, the following criteria have to be met:

• Its service provider is based in India.
• The beneficiary of the services is abroad.
• The place of supply is not within India.
• The money is to be received in a convertible foreign currency.
• The supplier and the recipient are not just the institutions of the same body.

Adherence to these criteria allows the exporters to save tax expenses, access working capital, and maintain healthy cash flow.

FIRC, BRC, and Essential Forex Documentation.

Effective GST compliance and successful refund claims are dependent on accurate documentation. These records are very vital in checking foreign currency receipts and the eligibility of export by the banks and tax authorities.

The following are important documents needed:

• FIRC (Foreign Inward Remittance Certificate): Proof of receipt of the foreign currency.
• BRC (Bank Realisation Certificate): Certificate stating that the proceeds of export have been realised.
• Export invoices with correct GST details
• LUT (Letter of Undertaking): This is obligatory where exportation of services is done without payment of GST.
• Bank advice and remittance confirmations.

The most common causes of delay or rejection of GST refunds are incomplete, mismatched, or delayed documentation.

GST Compliance Checklist for Forex Transactions

Businesses involved in forex transactions must adhere to the following checklist to ensure smooth compliance and quicker refunds:

• Properly categorise forex-based services under GST.
• Use a proper method of valuation of GST.
• Keep records of foreign exchange that comply with the RBI.
• Reconcile foreign receipts with GST returns regularly.
• File a timely LUT for export zero-rated services.
• Retain FIRCs and BRCs to use in case of audit and refund.

Need Help with GST Refunds?

If you are experiencing delays, mismatches, or rejections when claiming GST refunds for foreign exchange or export services, MYGST Refund, India’s #1 automated platform, is here to help. Expert assistance helps identify errors, proper filing, and ensures a quick and smooth GST Refund process so that you can focus only on your international business.

Conclusion

GST on Foreign exchange transactions in India may seem complicated, but the correct knowledge of rates, valuation procedures, and documentation will make it easy to comply. The businesses dealing with export, international services, and forex transactions in 2025 need to pay attention to the applicability of GST to prevent unnecessary taxes and missed refund claims.

It can be currency conversion, issuing forex cards, exporting services, whichever way it is, proper GST treatment and claim of refund can make your financial efficiency much better.

Frequently Asked Questions

1. Is GST applicable in the conversion of foreign currency?
Yes, it is the service or margin that is charged when converting currency and not the entire sum.

2. What is the foreign exchange transaction GST Rate?
The applicable GST rate is 18 per cent on the taxable amount of the forex service.

3. Does GST consider export services to be zero-rated?
Yes, services export will be zero-rated, on the condition of meeting established requirements.