India scraps plan for service tax on remittances

The Indian government has decided not to impose a service tax on foreign remittance to the relief of expatriates across the UAE.

DUBAI // The Indian government has scrapped plans for a service tax on foreign remittances, drawing relief from expatriates across the UAE.

A government circular issued on Tuesday said the tax would not be levied on the remittance of foreign currency or fees charged by banks.

"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," the Central Board of Excise and Customs circular said.

Remittances do not constitute a service and so should not carry a service tax, the circular stated.

The 12.36 per cent tax on remittance fees was due to be charged this month. It spurred objections from expatriates around the world.

"It's a good decision to withdraw," said Sreedharan Prasad, a coordinator of the social-welfare organisation Sevanam. "It's happy news for Indians working around the world.

"Even if it was a small amount charged it would have set a wrong precedent. When such plans are made, people protest and then the government takes action to remedy it. The government should always think twice before drawing up such plans."

The circular said any fee or conversion charge on money sent to India would not be liable for service tax, as the person sending the money and the company conducting the remittance were overseas.

"This clarification will be welcomed by all NRIs [non-resident Indians] ... because they will now be sure that whatever amount they remit there will be no tax," said Ajit Jakhadi, a property lawyer in India.