Exporters welcome exemption of service tax on remittance.

MUMBAI: Welcoming the Finance Ministry's decision to withdraw service tax on forex conversion, the apex body of exporters today said it will provide relief to the small exporters which are burdened by high interest costs.

The Government today said remittances from abroad will not attract service tax, allaying concerns raised by the new tax norms.

"Remittances are the single largest source of unconditional inflow of foreign exchange amounting to USD 64 billion in 2011, according to the World Bank data and given the declining levels of forex reserves, service tax could only act as a deterrent to precious incoming foreign exchange.

"The waiver of service tax on the same would ensure that this stable source of forex would continue to maintain the delicate balance of payment for India in this moment of global crisis," Federation of Indian Exporters Organisations (FIEO) President M Rafeeque Ahmed said.

Clarifying reports that remittances will attract 12 per cent tax, the Central Board of Excise and Customs (CBEC) today said, "there is no service tax per se on the amount of foreign currency remitted to the country."

The clarification follows reports that there was a move to levy 12 per cent tax on money sent back home by NRIs under the changed service tax regime from July 1.

The CBEC further said, "concerns have been expressed in various quarters regarding the leviability of service tax on the remittance of foreign currency in the country. Since remittance comprises money, the activity does not comprise a 'service' and thus not subjected to service tax."

In case any fee or conversion charges are levied for sending such money, they are also not liable to service tax.

The CBEC clarified that a domestic bank or a financial institution, which charges the foreign bank for the services provided at the receiving end, is not liable to pay tax.

FIEO also hailed the decision of banks and financial institutions not to charge service tax on payments made abroad for imports in the course of exports or otherwise.

Source : economictimes.indiatimes.com