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NRI Diwali bonus: No hike in money transfer fees for expats

UAE’s exchange houses will bear the increased burden – for now

One of the UAE’s largest exchange houses has confirmed to Emirates24|7 that it has decided not to pass on the increase in remittance service fees to UAE’s Indian expats – for now.

“We have not decided to pass on the incremental cost to the customer,” confirmed Pramod Mangat, Vice-President, Global Operations, UAE Exchange.

He added that a decision will be taken only after assessing the total cost burden on the company. “As of now, we are not going to pass it on,” he maintained.

A recent circular issued by India’s Central Board of Excise and Customs (CBEC) maintains that the commission that overseas exchange houses – such as UAE Exchange, Al Fardan Exchange, Al Ansari and Wall Street, etc. – pay to receiving banks in India (such as, say, ICICI or State Bank of India, etc.) is liable to attract service tax in that country.

The news comes during the ongoing festive season, when remittance houses are expecting a surge in money sent to India, the largest recipient of remittances in the world.

Xpress Money, for one, says it expects a 20 per cent rise in remittances from the UAE during the festive season, which started with Eid-Al Fitr, then Onam, Eid-Al-Adha, and is now continuing with Diwali and finally Christmas. The rise is in line with the projected growth in remittances by the company for the second half of the year, it noted.

“Customers, particularly South Asians, tend to remit higher amounts of money to their families back home during the festive season. This year we expect the increase to be in the range of 18-20 per cent to major recipient markets, where festivals are celebrated with enthusiasm,” said Sudhesh Giriyan, Vice-President and Business Head, Xpress Money.

The recent increase due to the service tax is marginal, as the tax is not on the amount of money remitted, but on the commission/fees that the overseas service providers pay their Indian counterparties, the CBEC maintains in the circular dated October 14, 2014.

“No service tax is payable per se on the amount of foreign currency remitted to India from overseas,” the CBEC clarifies in its circular. “As the remittance comprises money, it does not in itself constitute any service in terms of the definition of ‘service’ as contained in clause (44) of section 65B of the Finance Act 1994,” the official document adds.

At present, money exchanges in the UAE charge a Dh20 fee to effect remittance transactions. From this amount, they pay a certain undisclosed sum to their partner banks in India. This is the amount that stands to attract service fees, at the receiver’s end.

“This will certainly be an additional burden on us,” says Mangat. “The service fees will be levied on the part of commission we pay to Indian banks and other counterparties,” he says.

This amount varies depending on the agreement that exchange houses have with banks in India. The current rate of service tax in India works out to 12.36 per cent (flat service tax @ 12 per cent plus education cess @ 0.2 per cent plus senior & higher education cess @ 0.1 per cent). This means that global exchange houses will have to pay an additional percentage as service tax on the commission they already pay to Indian banks.

The circular clarifying the burden on remittances supersedes one issued by CBEC in 2012, which categorically said that the commission/fees on remittance doesn’t fall under the country’s service tax regime as the service is provided outside India’s borders.

“In case any fee or conversion charges are levied for sending such money, they are also not liable to service tax as the person sending the money and the company conducting the remittance are located outside India. In terms of the Place of Provision of Services Rules, 2012, such services are deemed to be provided outside India and thus not liable to service tax,” the agency had said in a circular dated July 10, 2012.

This now stands reversed, and agents and sub-agents in India stand to fall under the regime. “Sub-agents also fall in the category of intermediary. Therefore, service tax is payable on commission received by sub-agents from Indian bank/entity,” the agency has said.