Rule 207 — Rate of exchange for the purpose of deduction of tax at source on income payable in foreign currency.
Sub-rule (1) fixes the rate of exchange for deduction of tax at source on income payable in foreign currency of the kind specified in sub-rule (2). The value in rupees is calculated at the telegraphic transfer buying rate of that currency as on the date on which the tax is required to be deducted under Chapter XIX-B of the Act; where the telegraphic transfer buying rate is not published on that date, the last such published rate may be taken.
Sub-rule (2) confines sub-rule (1) to income payable to an assessee outside India, income payable to a Unit located in an International Financial Services Centre, and income payable by a Unit located in an International Financial Services Centre to an assessee in India.
Sub-rule (3) supplies three meanings. "International Financial Services Centre" has the meaning assigned to it in section 2(q) of the Special Economic Zones Act, 2005. "Telegraphic transfer buying rate" means the rate or rates of exchange adopted by the State Bank of India for buying that currency, having regard to the guidelines specified from time to time by the Reserve Bank of India for buying such currency, where the currency is made available to that bank through a telegraphic transfer. "Unit" has the meaning assigned to it in section 2(zc) of the Special Economic Zones Act, 2005.
Chapter XIX-B requires tax to be deducted on a rupee amount, but the payment may be denominated in a foreign currency whose value moves daily. The rule fixes both the rate to use and the date to use it on, and picks a rate that is published and verifiable — the State Bank of India's telegraphic transfer buying rate — so that deductor and deductee arrive at the same figure. The fallback to the last published rate keeps deduction possible on a day when no rate is published.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Rate of exchange for converting income payable in foreign currency into rupees | The telegraphic transfer buying rate of that currency | The rate or rates 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 through a telegraphic transfer | Sub-rule (1) read with sub-rule (3)(b) |
| Date on which that rate is taken | The date on which the tax is required to be deducted under Chapter XIX-B | Not the date of payment, the date of the invoice or the date of credit unless that is also the date on which tax is required to be deducted | Sub-rule (1) |
| Fallback where no rate is published on that date | The last such published rate | Where the telegraphic transfer buying rate is not published on the date on which tax is required to be deducted | Sub-rule (1) |
The date that matters is the date on which tax is required to be deducted under Chapter XIX-B, which is settled by those provisions and not by this rule; the rule only says which rate to apply on whatever that date turns out to be. The rate is a specific one — the State Bank of India's telegraphic transfer buying rate as defined in sub-rule (3)(b) — so a bank's own card rate, an average rate or the rate at which the payment was actually remitted is not the rate the rule prescribes, even where the difference is small. Sub-rule (2) also limits the rule's reach: it does not apply to every foreign currency payment, but to payments to an assessee outside India and to the two International Financial Services Centre situations, in one of which the payment is inward to an assessee in India.
A company is required on 15 June to deduct tax on a royalty of usd 50,000 payable to a non-resident. It converts the royalty at the State Bank of India telegraphic transfer buying rate for the US dollar as on 15 June, and deducts on that rupee amount, whatever rate it later obtains when it actually remits. If no telegraphic transfer buying rate was published on 15 June, it takes the last published rate.
A deductor meets it in every foreign currency payment covered by sub-rule (2) — in the rupee figure that goes into the deduction, the challan and the statement of deduction, and in any proceeding about short deduction where the conversion is questioned.
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
where the telegraphic transfer buying rate is not published on such date, the last such published rate may be taken