The Hindu Business Line : More clarity needed on service tax on forex deals, say banks

Taxing times
Big banks such as the SBI would need more time to inform their branches.
Banks have sought exemption for RBI, inter-bank transactions.

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Mumbai, May 15 Banks are expected to levy service tax on all foreign exchange transactions from Friday, even as there is lack of clarity on its applicability.

According to the notification, all foreign exchange transactions done from May 16 will be subject to a service tax of 0.25 per cent on the gross amount of the currency exchanged.

The Indian Banks’ Association, which had discussed the issue with bankers and forex dealers today, has sought time till August 1 for implementing the new levy.

It has also asked the Government to exempt transactions with RBI and inter-bank transactions from the tax, said an official from IBA.

“It will take time for big banks like State Bank of India to communicate this to all their branches, as they have a huge network. In case of inter-bank transactions we have asked for exemption because there is no net gain, effectively,” he explained.

According to RBI figures, the inter-bank forex turnover increased to $40.88 billion in end-March 2008, from $24.52 billion in the previous year.

A forex dealer said that ICICI Bank today announced a flat fee of Rs 100 for each inter-bank transaction and pay a service tax out of it.

Other banks too may adopt the same procedure, said a senior official from a public sector bank. ICICI Bank officials were not available for comment.

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