New Delhi: Apex chamber, the Associated Chambers of Commerce and Industry of India (ASSOCHAM) said that the government’s decision to revise taxes on currency conversion would boost transaction cost and hit the country’s exports.

"This charge, on the differential between RBI reference rate and the rate at which transaction is booked, will significantly increase transaction costs and decrease India's competitiveness in global markets," the apex chamber said.

The government has revised the policy, after Finance Minister Pranab Mukherjee proposed to introduce new methods to calculate service tax on forex transactions, in his Budget speech.

As of now the tax will be charged on one per cent of the difference between buying/selling rate and the Reserve Bank of India's reference rate for the day multiplied by total units of the currency. The apex bank publishes market rates every noon to act as a reference rate.

Disagreeing with the criteria, it said, taxing on the differential has no connection with the services provided by a bank.
It said the levy would be as good as imposing service tax on the profit or loss made by the money changers than on the services provided by the bank.

As per the revision, the 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 be 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.

However, the maximum amount of service tax paid has been capped at Rs 5,000.