Banks started charging a service fee of Rs 100 for every forex transaction of $10,000 and above and Rs 50 on transactions of less than $10,000 from May 16, following the notification by the government to levy service tax. Banks will now have to levy a service tax on this fee.
A forex dealer with a public sector bank said that this was decided at a meeting organised by the Indian Banks Association, on Thursday.
As per the government notification the service tax was to be levied on the gross value of the transaction, as there was no service charge. But this would have worked out to be very costly for banks, as the margins on the foreign currency transactions are not very high.
So, banks have decided to charge a service fee and levy tax on that fee.
Typically, all inter-bank transactions are above $10,000.
Only in case of customer transactions the amount may be lower, the bank official said.