Stories
CBIC Clarifies Nostro Account Receipts to Streamline Banking Service Export Taxation
- •The Central Board of Indirect Taxes and Customs clarified that foreign currency receipts in RBI-permitted forms satisfy the export of services condition.
- •A Nostro account is a bank's own account held with a correspondent bank abroad, commonly used by financial institutions and GCCs for settlements.
- •Previously, disputes arose over whether funds credited directly to overseas Nostro accounts fulfilled the requirement for receiving convertible foreign exchange.
- •The new guidance prioritizes commercial reality over rigid procedural interpretations, preventing the denial of zero-rated GST benefits for banks.
- •Banks must maintain a clear audit trail linking invoices, Nostro credits, accounting records, and FEMA documentation to ensure continued compliance.
Key Questions Answered
The CBIC clarified that foreign currency receipts in forms and manners permitted by the RBI satisfy the foreign-currency receipt condition for exporting services. This aligns tax principles with established banking practices and eliminates avoidable interpretational disputes for banks and financial sectors.
A Nostro account is a bank’s own account held with a correspondent bank in another country, typically denominated in that jurisdiction's currency. For example, an Indian bank may maintain a US dollar-denominated account overseas to facilitate dollar settlements.
To maintain compliance, banks must ensure adherence to applicable RBI permissions, FEMA requirements, and reporting obligations. They must also keep a clear audit trail linking the export invoice, overseas customer, currency, Nostro credit, accounting records, and relevant FEMA documentation.
