GST on International Transactions: Rules, Charges & Examples

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TL;DR: GST on international transactions depends on the type of transaction. Export of services is generally treated as a zero-rated supply (subject to applicable conditions), while banks, payment gateways, and forex providers may charge 18% GST on their service fees. Understanding these rules can help businesses stay compliant and manage cross-border payments more efficiently.

GST is not limited to transactions within India. If you receive payments from international customers or import goods or services, understanding how GST applies can help you stay compliant and avoid unnecessary confusion.

Whether you run an online or offline business, work as a freelancer, export services, or are planning to build a business that serves customers outside India, understanding GST on international transactions can save you time, money, and compliance hassles.

What is GST on International Transactions?

GST applies differently depending on the type of international transaction.

For exports of goods and services, GST law treats them as zero-rated supplies, which means you generally do not charge GST to your international customers (subject to applicable GST conditions).

However, GST may still apply to services provided by banks, payment gateways, or forex providers, such as currency conversion or payment processing charges. In these cases, the 18% GST is charged only on the service fee, not on the actual payment you receive from your overseas customer.

For example: A US client of yours pays you $1000; you do not charge GST on your invoice. The bank converts the dollars to rupees and charges a conversion or service fee, say ₹500, the bank then adds 18% on that ₹500, leading to a GST of ₹90.

Also read: How Indian Businesses and Freelancers Can Receive International Payments

GST on Export of Services

Export of services is generally treated as a zero-rated supply under GST. Registered exporters typically have two options:

Export under a Letter of Undertaking (LUT) without paying IGST and claim eligible input tax credits.
Pay IGST on exports and later claim a refund, where applicable.

If you regularly receive international payments, consult your tax advisor to determine which option is suitable for your business.

Types of GST Applicable to International Transactions

GST is not a single tax that applies in the same way to every international transaction. Different GST provisions apply depending on the nature of the transaction.

Integrated Goods and Services Tax (IGST) is the main tax that applies to international transactions.

On imports of goods: IGST is charged at the time of customs clearance, in addition to the basic customs duty applied. It is calculated on the value of goods + customs duty + other charges.
On imports of services (business use): IGST is paid by the Indian recipient under reverse charge.
On exports (if you choose to pay upfront): Exporters can pay IGST at the time of export and later claim a full refund during filing.

IGST exists specifically because any transaction crossing India’s borders, or even state borders, is treated as an “inter-state” supply, and IGST is the tax meant for inter-state/international movement of goods and services.

GST on Forex Conversion & Payment Processing Charges

Although export income itself is generally not subject to GST, banks, authorised dealers, payment gateways, and forex providers charge GST on the services they provide, such as:

Currency conversion (forex) charges
Payment processing fees
Bank service charges
Other applicable transaction fees

These service charges generally attract 18% GST.

International Payment Journey to Your Bank Account

How GST is Calculated on Foreign Currency Exchange

Banks and forex providers generally determine their charges using different valuation methods prescribed under GST rules. The following simplified examples explain how these calculations work.

1. Rate-Based Method

This is the simplest method. The same exchange rate is applied to the entire transaction amount, regardless of its size.

How it works

Take the total foreign currency amount.
Multiply it by the applicable exchange rate.
Deduct applicable bank or forex charges.

Example: Suppose you receive USD 1,000 and the exchange rate is ₹85 per USD.

Calculation: USD 1,000 × ₹85 = ₹85,000

You receive ₹85,000 before any applicable bank charges and GST on those service charges.

2. Slab-Based Method

In this method, different portions (slabs) of the transaction are charged different service fees depending on the bank’s pricing policy.

Example

Suppose a bank charges:

First USD 500 → Service fee = ₹100
Next USD 500 → Service fee = ₹75

For a payment of USD 1,000:

First USD 500 → ₹100
Next USD 500 → ₹75

Total service fee = ₹175

If the exchange rate is ₹85 per USD:

Gross amount = ₹85,000
Less service fee = ₹175
Net amount = ₹84,825

GST, where applicable, is calculated on the service fee charged by the bank or forex provider.

Rate-Based vs Slab-Based Calculation

Rate-Based Method	Slab-Based Method
One exchange rate or fee applies to the entire transaction.	Different rates or fees apply to different portions of the transaction.
Simple and straightforward.	Depends on predefined slabs or pricing policies.
Example: USD 1,000 × ₹85 = ₹85,000.	Example: Different service fees apply to different portions of the transaction.

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Frequently Asked Questions

How much GST is applicable on foreign exchange?

Generally, 18% GST is applicable on the service fees or margins charged by banks, authorised dealers, payment gateways, or forex providers – not on the total foreign currency amount.

Is GST charged on payments received from foreign clients?

Export of services is generally treated as a zero-rated supply, so GST is usually not charged on the invoice if the applicable export conditions are satisfied. However, GST may apply to bank, payment gateway, or forex service charges.

What are the methods of calculating GST on foreign currency exchange?

Banks generally use valuation methods prescribed under GST regulations, including rate-based and slab-based methods, depending on the transaction.

Is GST applicable on international travel forex cards?

Yes. GST applies to the service charges involved when purchasing, loading, or reloading forex cards.

Can exporters claim an IGST refund?

Yes. Eligible exporters who pay IGST on exports can claim a refund as per GST regulations. Alternatively, many exporters choose to export under an LUT without paying IGST upfront.

How much foreign currency can an Indian carry while travelling?

As per RBI guidelines, Indian residents can carry foreign exchange within the prescribed limits under the Liberalised Remittance Scheme (LRS). Cash and foreign exchange exceeding the applicable declaration limits must be declared at customs. Since these limits may change over time, always check the latest RBI and customs guidelines before travelling.

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