Direct answer: GST Rule 32(2) values the money-changing service, not automatically the entire currency principal as taxable service value. The rule provides a reference-rate method and an optional slab method. Once the supplier chooses the slab option for a financial year, it cannot withdraw that option during the rest of that year.
Position checked on 22 October 2026 against CBIC’s published CGST Rules, Rule 32(2), cross-checked with ICAI’s April 2026 Bare Law compilation. The article computes the service’s taxable value only. Classification, exemption, rate, place of supply, other fees and actual GST payable require separate assessment; the examples do not present valuation percentages as GST rates.
Choose the valuation route before calculating
Under clause (a), an exchange from or to INR uses the relevant buying or selling rate’s difference from the RBI reference rate at that time, multiplied by currency units. Keep the transaction direction visible. Where the relevant reference rate is unavailable, the rule uses 1% of the INR amount provided or received. Where neither currency is INR, use 1% of the lower of the two INR equivalents calculated at the applicable reference rates for that day.
Retain the reference-rate evidence, its date and the unit convention. Rates quoted per hundred units must be normalised before multiplication. A customer screenshot, an accounting closing rate and a dealer’s transaction rate are different records. Do not substitute one for the prescribed reference without analysis.
The slab option uses the excess in the relevant band
| Gross INR amount exchanged, G | Value of service under clause (b) | Control |
|---|---|---|
| Up to ₹1,00,000 | Higher of 1% × G and ₹250 | The ₹250 minimum is a taxable-value floor. |
| Above ₹1,00,000 up to ₹10,00,000 | ₹1,000 + 0.5% × (G − ₹1,00,000) | Apply 0.5% only to the excess over ₹1,00,000. |
| Above ₹10,00,000 | Lower of ₹5,500 + 0.1% × (G − ₹10,00,000), and ₹60,000 | ₹5,500 is the base; ₹60,000 is the taxable-value ceiling. |
For example, the formula meets at ₹1,000 when G is ₹1,00,000 and ₹5,500 when G is ₹10,00,000. Applying the percentage to the full gross amount again overstates the slab result. The current-year bank-published foreign-currency conversion table, effective 1 May 2026 provides a practical cross-check of this excess-band arithmetic; the legal basis remains Rule 32(2), not the bank’s commercial tariff.
Keep gross currency, service value and tax in separate columns
A conversion register should record the foreign units, gross INR equivalent, method, rate inputs, service value and separately determined GST. In a slab-method case the bank or money changer’s commercial fee is not a reason to apply a different slab formula. Any separately supplied or separately charged service needs its own valuation and classification review rather than being silently absorbed or taxed twice.
Document the supplier’s financial-year election and implement it consistently. A transaction-by-transaction comparison can be a planning exercise before an election, but it is not permission to switch between methods after choosing clause (b) whenever a different answer is cheaper. Maintain method controls across branches and booking systems of the supplier.
Common computation failures
Frequent errors include treating the 1% valuation fraction as the GST rate, using the larger rather than smaller INR equivalent in a cross-currency case, confusing ₹5,500 with ₹5,000, and applying a minimum or cap to the tax instead of the taxable value. The ₹250 floor belongs to the first slab option; do not import it automatically into a clause (a) missing-reference calculation.
The eight examples use fictional exchange rates solely for arithmetic. They are not actual RBI quotes for 22 October 2026. Clauses (a) and (b) are demonstrated for separate suppliers or separate valid election circumstances; the cases do not recommend intra-year switching. No GST rate is assumed or computed.
Worked illustrations
These illustrations use fictional facts and expressly stated assumptions. Amounts are Indian rupees unless a different currency or unit is specified. They are independent examples, not findings about any actual client.
Illustrative example 1: Dealer buys foreign currency under the reference-rate method
The dealer buys USD 1,000 at ₹82.40 per USD when the assumed relevant RBI reference is ₹83.20. Gross INR paid is ₹82,400. The service value is (₹83.20 − ₹82.40) × 1,000 = ₹800. Keep the ₹82,400 principal and ₹800 service value in separate columns.
Illustrative example 2: Dealer sells foreign currency under the reference-rate method
The dealer sells USD 2,000 at ₹84.50 per USD; the assumed reference rate is ₹83.25. Gross INR received is ₹1,69,000. Service value is (₹84.50 − ₹83.25) × 2,000 = ₹2,500. Reversing the rate difference would incorrectly produce a negative figure in these stated facts.
Illustrative example 3: Reference unavailable for an INR exchange
For an otherwise qualifying clause (a) case, the relevant reference rate is unavailable and the INR amount received is ₹80,000. Service value is ₹80,000 × 1% = ₹800. This is the value on which the separately applicable GST rate is examined, not ₹800 of GST itself.
Illustrative example 4: Neither exchanged currency is INR
At the assumed applicable reference rates, the two currency amounts translate into ₹82,000 and ₹83,000. Use the lower amount: ₹82,000 × 1% = ₹820. Using the higher equivalent would produce ₹830, an overstatement of ₹10 in the taxable service value.
Illustrative example 5: The first slab’s minimum
A supplier validly using clause (b) exchanges a gross INR amount of ₹20,000. One per cent is ₹200. The higher of ₹200 and ₹250 is ₹250, so taxable value is ₹250. The ₹50 increase is a valuation adjustment; it is not a ₹250 tax charge.
Illustrative example 6: The middle slab uses only the excess
Gross INR amount exchanged is ₹2,00,000 under the slab option. Excess over ₹1,00,000 is ₹1,00,000. Taxable service value is ₹1,000 + (₹1,00,000 × 0.5%) = ₹1,500. Applying 0.5% to the full ₹2,00,000 and adding ₹1,000 would overstate it by ₹500.
Illustrative example 7: The upper slab before the ceiling
Gross INR amount exchanged is ₹25,00,000 under clause (b). Excess over ₹10,00,000 is ₹15,00,000. Value is ₹5,500 + (₹15,00,000 × 0.1%) = ₹7,000. The ₹60,000 ceiling does not bind in this case.
Illustrative example 8: Apply the upper slab ceiling to taxable value
Gross INR amount exchanged is ₹6,00,00,000. The uncapped calculation is ₹5,500 + (₹5,90,00,000 × 0.1%) = ₹64,500. Apply the ₹60,000 ceiling, reducing service value by ₹4,500. The currency principal does not become ₹60,000 and the ceiling is not a maximum GST amount.
Ten-step verification table
| Step | Verification | Evidence to retain |
|---|---|---|
| 1 | Confirm the actual money-changing service and supplier. | Transaction agreement, GST registration and service description. |
| 2 | Establish the valuation method and financial-year election. | Approved election record and method controls. |
| 3 | Record currency direction, units and gross INR amount. | Deal ticket and currency-unit convention. |
| 4 | Retain the applicable reference-rate evidence where required. | Dated reference record and normalisation working. |
| 5 | Apply the correct missing-reference or cross-currency proviso. | Reason for unavailability or both INR-equivalent calculations. |
| 6 | Apply slab percentages only to the relevant excess. | Formula sheet showing gross amount and band deduction. |
| 7 | Test the ₹250 floor and ₹60,000 ceiling in their correct limbs. | Boundary checks on taxable value. |
| 8 | Review separately charged services without omission or duplication. | Fee schedule and supply-wise valuation analysis. |
| 9 | Determine GST rate, place of supply and invoice compliance separately. | Classification, exemption and invoice working. |
| 10 | Reconcile principal, taxable value and tax to final records. | Conversion register, ledger, invoice and reporting reconciliation. |
Sixteen practitioner FAQs
1. Is the currency principal automatically the taxable service value?
Rule 32(2) provides a specific valuation mechanism for the money-changing service. Keep principal and computed service value separate.
2. Is the 1% fraction a GST rate?
No. It is a valuation input in the relevant limb; determine the actual applicable GST rate separately.
3. Who chooses the optional slab method?
The supplier of the service exercises the option, subject to the rule’s financial-year restriction.
4. Can the supplier leave clause (b) mid-year to use a cheaper answer?
Once exercised for the financial year, the option cannot be withdrawn during the remaining part of that year.
5. Which reference matters for the INR method?
The rule refers to the relevant RBI reference rate at that time. Retain suitable evidence rather than assuming the accounting rate is interchangeable.
6. What if the relevant reference rate is unavailable?
The specified clause (a) proviso uses 1% of the INR amount provided or received.
7. Do two foreign currencies use the higher INR equivalent?
No. The rule uses the lower of the two INR equivalents calculated at that day’s applicable reference rates.
8. Does the first slab’s ₹250 floor apply to every other method?
Do not import it automatically into clause (a). Apply the condition in the limb where it appears.
9. What is the taxable value at exactly ₹1,00,000 under clause (b)?
₹1,000, being 1% of that gross amount and above the minimum.
10. What is it at exactly ₹10,00,000?
₹1,000 plus 0.5% of ₹9,00,000, giving ₹5,500.
11. Does the middle slab apply 0.5% to all the currency exchanged?
The progressive calculation applies it to the excess over ₹1,00,000, plus the ₹1,000 base.
12. Is the upper slab base ₹5,000?
No. Use ₹5,500, then the prescribed fraction of the excess over ₹10,00,000, subject to the ceiling.
13. Is ₹60,000 a cap on GST payable?
No. It caps the service value under that slab; compute applicable tax separately.
14. Are these examples live exchange-rate quotations?
No. All rate inputs are explicitly fictional. Replace them with the required transaction-date evidence in actual work.
15. Can a bank tariff replace the statutory valuation rule?
No. A tariff can corroborate an implementation example, while the Act and applicable rules govern the legal analysis.
16. What is the strongest reconciliation control?
Separate gross currency principal, chosen valuation method, computed service value and actual tax, then tie them to the deal and invoice records.
Working-paper organisation
Keep the source documents, calculation and final conclusion together for the same entity and period. If using assureTax or other assureOffice tools, use only confirmed available functions and retain this evidence with the output.
Conclusion
Fix the method, preserve its rate inputs and apply the correct band arithmetic. Review GST payable only after the taxable service value has been established.