On Tuesday, the government said remittances from abroad will not attract service tax, putting to rest the concerns raised in view of new tax norms.
"The matter has been examined and it is clarified that there is no service tax % on the amount of foreign currency remitted to India from overseas," the Central Board of Excise and Customs (CBEC) said.
The clarification follows concerns over reports that there was a move to levy 12% tax on money sent back home by Indians abroad under the changed service tax regime from July 1.
Emerging as the top recipient among developing nations, India received remittances of USD 64 billion in 2011, according to the World Bank data. Chief ministers of Punjab and Kerala, which are among the states receiving the largest remittances from expatriates, had taken up the matter with Prime Minister Manmohan Singh.
CBEC said, "Concerns have been expressed in various fora regarding the leviability of service tax on the remittance of foreign currency in India from overseas. "It added, "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 as the person sending the money and the company conducting the remittance are located outside India, the circular issued by the Board said.
The CBEC further clarified that Indian bank or financial institution which charge the foreign bank for the services provided at the receiving end, is not liable to service tax. Kerala, Punjab, Tamil Nadu and Andhra Pradesh have maximum number of emigrants mostly in the Gulf.