Foreign exchange tax

Foreign Exchange Tax – A foreign exchange tax is a levy imposed by a government on transactions involving foreign currencies. It is designed to generate revenue, regulate international currency flows, and sometimes influence exchange rates. The tax can be applied in multiple ways, depending on the country’s monetary and fiscal policies. Key Features: Applies to foreign currency transactions, such as conversions, trading profits, or cross-border payments. Can serve as a regulatory tool to manage currency volatility. Acts as a revenue source for the government. May vary in rate depending on the type of transaction and the parties involved. Types of Foreign Exchange Tax: Transaction Tax: Charged when converting domestic currency to foreign currency. Profit Tax: Levied on gains from foreign currency trading or investments. Cross-Border Tax: Imposed on payments or transfers made internationally.

Example: A company converting ₹10 lakh to US Dollars for import payments may incur a small percentage as foreign exchange tax, collected by the central bank or government authority.