'Service tax on forex transactions cannot exceed Rs 5K'

The government has capped service tax on foreign exchange transactions at Rs 5,000, which is seen as a bid to pacify market players, who feared a significant drop in the country's forex volumes due to high levies on such transactions.

As per a notification, tax for foreign exchange transactions will be calculated "at the rate of 0.1 per cent of the gross amount of currency exchanged for an amount up to Rs 1,00,000, subject to the minimum amount of Rs 25".

For transactions between Rs 1 and Rs 10 lakh, the tax rate will Rs 100, plus 0.05 per cent of the gross amount of currency exchanged.

For transactions over Rs 10 lakh, the rate of service tax to be levied has been fixed at Rs 550 plus 0.01 per cent of the gross amount of currency exchanged.