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HERE’S ALL THAT YOU NEED TO KNOW ABOUT GST ON INWARD REMITTANCE



Understanding GST on inward remittances for business owners can be complex. As
GST on inward remittances doesn't directly apply to foreign remittances,
understanding the specific taxes and charges involved is important. 

‍

Read on to find out more...


GST ON INWARD REMITTANCE

‍

The revenue generated from Goods and Services Tax (GST) on inward remittances
significantly contributes to our nation's economic income. In March 2023, GST
revenues experienced a notable growth of 13%, marking the second-highest monthly
collection in the history of the indirect tax, amounting to ₹1.6 lakh.

‍

Furthermore, there was an 8% increase in receipts from imports, while income
from both domestic transactions and services imports saw a substantial rise of
14% compared to the previous year. This signifies a positive trend in economic
activity and revenue generation through GST on inward remittances.

‍

In the context of receiving foreign currency through inward remittances in
India, it's important to note that GST on inward remittances is generally not
applied as a separate charge. While certain online platforms may impose an 18%
transaction fee on specific products for international money transfers, it's
crucial to understand that this fee doesn't equate to a distinct GST levy on the
remittance transaction itself.

‍

Businesses working with clients from other countries get a big benefit—they
don't have to add extra GST on the money they receive for their services.

‍

Exporters usually get paid in foreign currency for their goods or services.
Right now the remittance conversion rate is done in USD. Some have a special
account (EEFC) to directly store foreign currency in an Indian bank. But, for
most exporters, the norm is to receive payments in Indian currency. Before that,
they deduct remittance charges, conversion fees, and other expenses. This way,
the funds are converted to local currency, and any charges are taken out before
they get the final amount.

‍


GST ZERO-RATED SUPPLY


GST ON EXPORT OF PHYSICAL GOODS

‍

The export of physical goods is classified as a zero-rated supply, meaning that
no GST will be imposed on the export of any type of goods.

‍


GST ON EXPORT OF SERVICES

There is no GST on the export of services from India as well. Exports of
services are also exempt from duties, and any duties paid on exported goods or
inputs are eligible for a refund. Submit a Letter of Undertaking (LUT) or an
export bond to get an exemption from IGST. Opting for export under LUT or bond
is advantageous as it eliminates the need for pursuing a tax refund, saving you
time and effort.




HOW TO SAVE ON FOREIGN REMITTANCE TAXES? 

Imagine your business is based in India, and you're expecting an inward
remittance of $10,000 from a foreign client for services you have provided. Upon
receiving the funds, the bank applies a Tax Collected at Source (TCS) of 5%,
deducting $500 before crediting the amount to your business account.

‍

To offset this TCS and potentially reduce your taxable income, your business
explores eligible business expenses and deductions. Let's say you have
legitimate business expenses worth $2,000 that can be claimed. By properly
accounting for these expenses, you can reduce your taxable income.

‍

Now, when you file your business tax return, the reduced taxable income is
considered for TCS calculation. The 5% TCS on the reduced taxable income of
$8,000 amounts to $400.

‍

In this scenario, your business has effectively managed the impact of TCS by
minimizing the taxable income, resulting in a reduced TCS amount. This strategic
approach helps optimize the use of funds received through inward remittance and
ensures compliance with tax regulations.

‍


HOW IS GST ON INWARD REMITTANCE CALCULATED IN INDIA? 

The Goods and Services Tax (GST) on inward remittances does not directly apply
to foreign remittances in India, as GST is designed for goods and services
consumed within the country. Foreign remittances involve the cross-border
transfer of money and are not subject to GST. 

‍


COMPLIANCE: GST ON INWARD REMITTANCE 

The GST guidelines related to inward remittances focus on services like
compliance handling and the issuance of Foreign Inward Remittance Certificates
(FIRCs) and Bank Realisation Certificates (BRC) in India. What distinguishes
this scenario is the utilization of the reverse charge mechanism. This mechanism
alters the dynamics by transferring the responsibility of directly remitting GST
to the Indian government from the service provider's business to the foreign
clients, ultimately exempting the service provider from this financial
responsibility.

‍

As a result, there's no requirement to list or add GST as a separate charge on
invoices when offering these services to foreign clients. This straightforward
approach makes billing easier for both the service provider and international
clients.

‍

For instance, if a company helps a foreign client with compliance issues, the
foreign client takes on the responsibility of paying the GST directly to the
Indian government through the reverse charge mechanism. This relieves the
service provider's business from this financial responsibility.

‍


FAQ’S

 1. What are the charges for inward remittance?

Traditional banks may apply forex margin charges ranging from 1.5% to 2.5%,
along with additional tax charges. On the other hand, fintech platforms may
offer a more transparent fee structure for inward remittances. Instead of
variable charges, fintechs for inward remittances, often charge a flat fee,
which can range from 2% to 2.5%, inclusive of all applicable taxes. 

‍

 2. Is GST applicable on foreign payments?

No. Banks and fintechs follow different rules when it comes to GST costs.
Karbon’s tie-up with JP Morgan in the US for all inward remittances follows a
transaction path that is internalized and does not require businesses to pay GST
on inward remittances. 

‍

 3. How much remittance is tax-free?

In India, inward remittances themselves are generally not taxable. The person
receiving money through remittances doesn't need to pay income tax on the
received amount. Nevertheless, it's crucial to assess the purpose of the
remittance and determine if it might be connected to taxable income.

‍

For example, if the remittance is a gift from a non-relative, it may be subject
to gift tax. Additionally, if the inward remittance is related to business
income or investments, the tax can vary. 

 4. Is there a limit on inward remittance to India?

No. There is no limit on the remittance amount. 

 5. What are the documents required for inward remittance?

There are no special documents required for inward remittance to India. All you
need to provide is the invoice with the remittance amount and other
company/personal details along with the ID proof. 

‍


FINAL WORD

While GST on inward remittance doesn't directly impact the process, it's
essential to consider other fees imposed by banks or financial institutions for
remittance services. 

‍

By staying updated on the taxation landscape and being aware of potential
charges, business owners can ensure compliance and make informed financial
decisions regarding inward remittances.

The views expressed in the blogs on this page are solely the opinions of the
authors and do not constitute expert advice. While we strive to provide accurate
and up-to-date information, we make no representations or warranties of any
kind, express or implied, about the completeness, accuracy, reliability,
suitability or availability with respect to the website or the information,
products, services, or related graphics contained on the website for any
purpose. Any reliance you place on such information is therefore strictly at
your own risk. We disclaim any liability for any loss or damage including
without limitation, indirect or consequential loss or damage, or any loss or
damage whatsoever arising from loss of data or profits arising out of, or in
connection with, the use of this website.

written by

RAMITHA RAMESH

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