Abu Dhabi: Although a service tax recently introduced by Delhi on “fees or commission” charged on remittances from abroad has not affected the cost of sending money to India so far, the situation may change in the coming years.

The existing 12.36 per cent service tax may go up by around 120 per cent when a new Indian tax regime is introduced in April 2016, according to experts.

As Gulf News reported, although India started levying the tax effective October 15, it has not posed any burden on Indian expatriates as the tax is imposed only on the “fee or commission charged by banks for facilitating remittances” and not on the actual remittance.

The agents in India have not started passing on the tax to customers as they expect a favourable response from the Indian Government to their request for abolishing the new tax, an industry executive told Gulf News on Monday.

Foreign Exchange and Remittance Group (FERG), an official platform of the companies engaged in the business of money exchange and remittances in the UAE, has also requested the Indian Government to abolish the tax because the resultant increased cost of remittance may prompt people to depend on illegal channels, the organisation’s vice-chairman Y. Sudhir Kumar Shetty said.

Considering the fact that remittance fees can go up to Dh20 in the UAE and a sum between Dh5 and Dh10 is paid to agents in India, the existing 12.36 per cent tax may go up to Dh1.24 (Rs20.9), Shetty said.

Although it is a small amount for a single transaction, an agent doing thousands of transactions has to pay a huge amount as tax, which may be passed on to the customers, Shetty, who is also the COO of UAE Exchange, said.

However when the Goods and Services Tax (GST) comes into effect in India, the rate of service tax will go up to 27 per cent from the current 12.36 per cent, a prominent financial consultant told Gulf News on Monday.

Previously, a 20 per cent rate had been proposed under the proposed GST, which replaces the service tax.

“Unfortunately the empowered committee of state finance ministers has recommended 27 per cent tax instead of 20 per cent,” Sachin Menon, chief operating officer, tax and regulatory services at KPMG in Mumbai, a prominent financial advisory in India, said.

The GST is a uniform indirect tax levied on all goods and services produced in the country as well as those imported from abroad.

It will replace all central and state indirect taxes like CENVAT (Central Value Added Tax), excise, customs, VAT (Value Added Tax) and state excise from April 1, 2016.

Shetty said Indian businesspeople like him, as well as expatriate groups, will raise this issue at the upcoming Pravasi Bharatiya Divas, an Indian government event for Non-resident Indians, and all other possible forums.