Rule 207: Exchange rate for TDS on income payable in foreign currency
Rule 207 fixes the exchange rate for deducting tax at source on income payable in foreign currency in three situations: payments to an assessee outside India, payments to a Unit in an International Financial Services Centre, and payments by such a Unit to an assessee in India. The rupee value is calculated at the telegraphic transfer buying rate on the date the tax is required to be deducted. If no rate is published that day, the last published rate may be used.
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Bare law
Rule 207 - Rate of exchange for purpose of deduction of tax at source on income payable in foreign currency
(1) For the purpose of deduction of tax at source on any income payable in foreign currency as specified in sub-rule (2), the rate of exchange for calculation of the value in rupees shall be the telegraphic transfer buying rate of such currency as on the date on which such tax is required to be deducted under the provisions of Chapter XIX-B of the Act; but where the telegraphic transfer buying rate is not published on such date, the last such published rate may be taken.
(2) The provisions of sub-rule (1) shall be applicable in respect of income payable— (a) to an assessee outside India; or (b) to a Unit located in an International Financial Services Centre; or (c) by a Unit located in an International Financial Services Centre, to an assessee in India.
(3) For the purposes of this rule,— (a) "International Financial Services Centre" shall have the same meaning as assigned to it in section 2(q) of the Special Economic Zones Act, 2005 (28 of 2005); (b) "telegraphic transfer buying rate", in relation to a foreign currency, means the rate or rates of exchange adopted by the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), for buying such currency, having regard to the guidelines specified from time to time by the Reserve Bank of India for buying such currency, where such currency is made available to that bank through a telegraphic transfer; and (c) "Unit" shall have the meaning assigned to it in section 2(zc) of the Special Economic Zones Act, 2005 (28 of 2005).
Rule breakdown
The rate and date — Rule 207(1)
For TDS on income payable in foreign currency in the cases in sub-rule (2), the rupee value is calculated at the telegraphic transfer buying rate of that currency on the date on which tax is required to be deducted under Chapter XIX-B.
If the telegraphic transfer buying rate is not published on that date, the last published rate may be taken.
When the rule applies — Rule 207(2)
The rule applies to income payable (a) to an assessee outside India; (b) to a Unit located in an International Financial Services Centre; or (c) by a Unit located in an International Financial Services Centre to an assessee in India.
Definitions — Rule 207(3)
"International Financial Services Centre" has the meaning in section 2(q) of the Special Economic Zones Act, 2005, and "Unit" has the meaning in section 2(zc) of that Act.
"Telegraphic transfer buying rate" means the rate or rates of exchange adopted by the State Bank of India for buying the currency, having regard to Reserve Bank of India guidelines, where the currency is made available to that bank through a telegraphic transfer.
Key takeaways
Date of required deduction
The rate is taken on the date tax is required to be deducted.
Fallback
If no rate is published that day, the last published rate may be used.
Three situations
Payments outside India, payments to IFSC Units, and payments by IFSC Units to assessees in India.
Practical checklist
- Identify the date on which tax is required to be deducted under Chapter XIX-B.
- Use the State Bank of India telegraphic transfer buying rate for that date.
- Keep a record of the rate used.
Avoid
- Do not use the date of actual remittance if tax was required to be deducted on an earlier date.
- Do not use a selling rate; the rule specifies the buying rate.
FAQs
Which rate applies for TDS on a foreign-currency payment to a non-resident?
Where the payee is an assessee outside India, the State Bank of India telegraphic transfer buying rate on the date tax is required to be deducted.
What if the rate is not published on that date?
The last published rate may be taken.
Does the rule apply to IFSC Units?
Yes. It covers income payable to a Unit in an International Financial Services Centre and income payable by such a Unit to an assessee in India.
Where are "Unit" and "International Financial Services Centre" defined?
In sections 2(zc) and 2(q) of the Special Economic Zones Act, 2005, as Rule 207(3) provides.
Glossary
- IFSC
- International Financial Services Centre, as defined in section 2(q) of the Special Economic Zones Act, 2005.
- Unit
- As defined in section 2(zc) of the Special Economic Zones Act, 2005.