Valuation of Exports/Imports When INR Rate Fluctuates

May 23, 2025 8 min read

In international trade, currency fluctuations significantly impact transaction valuations. This guide explains how exchange rate variations affect the valuation of cross-border transactions for tax purposes, focusing on the legal framework and practical implications.

Legal Framework for Exchange Rate Determination

The valuation methodology is governed by Rule 34 of the CGST Rules, 2017, which prescribes specific conversion mechanisms:

1

Goods Transactions

Use the customs exchange rate notified under Section 14 of the Customs Act for the time of supply date

2

Services Transactions

Apply generally accepted accounting principles (GAAP) rates on the time of supply date

3

Time of Supply

For goods: Invoice date or last permissible date under Section 31(1)
For services: Earlier of invoice date or payment receipt

Import Valuation Mechanism

All imports are treated as interstate supplies subject to IGST. The valuation follows this strict process:

1

Determine CIF Value

Calculate Cost, Insurance, and Freight in foreign currency

2

Apply Customs Duties

Add basic customs duty and other applicable charges

3

Currency Conversion

Convert to INR using RBI/customs notified rate on clearance date

4

Calculate IGST

Apply IGST rate to the converted value

Export Valuation Methodology

While exports are zero-rated, proper valuation remains crucial for refund claims and compliance:

1

Goods Exports

Multiply foreign currency value by customs reference rate on invoice date

2

Service Exports

Use GAAP rate on earlier of invoice date or payment receipt

3

Advance Payments

Convert advances at GAAP rate on receipt date

Critical Compliance Considerations

Documentation Requirements

  • Maintain records of reference rates used
  • Document time of supply determination
  • Preserve customs documentation for imports

Common Pitfalls

  • Using incorrect reference dates
  • Applying wrong conversion methodology
  • Attempting to adjust for post-supply fluctuations

Audit Preparedness

  • Establish clear conversion policies
  • Train staff on proper procedures
  • Conduct periodic internal reviews

Practical Implications of Rate Fluctuations

The tax treatment of exchange rate differences depends on when they occur:

Scenario Tax Treatment Accounting Impact
Rate change before time of supply Affects taxable value Adjust invoice value
Rate change after time of supply No GST impact Record as forex gain/loss
Multiple payments across periods Each at its time of supply rate May create accounting differences

Key Takeaways

  • The taxable value is fixed at the time of supply and doesn't change with subsequent rate fluctuations
  • Different conversion rules apply for goods versus services
  • Maintaining proper documentation is essential for compliance
  • Forex gains/losses after time of supply are outside GST scope

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