Sources say the implementation of KYC norms will involve a greater scrutiny to ascertain the nature and origin of the funds.
This will be done for transactions over and above $1000 to keep a check on the anti-money laundering activities through the foreign exchange channel.
Under the KYC norms, in case of purchaser of the foreign currency, the scrutiny will mainly involve the nature of the client, nature of expenditure and source of the rupee funds.
Similarly, for seller of foreign currency, the origin of the currency and source will be greater importance. They would be required to report suspicious transactions to the financial intelligence unit set up by the government.
On the other hand, the government brought money changers under the service tax net wherein an entity involved in purchase and selling of foreign currency will have to pay service tax. The money changers will have to pay service tax with retrospective effect from 2003.
Thus the category will be taxed at the rate of 8 per cent from July 2003 to September 2004 and at a rate of 10.2 per cent thereafter. The implementation has been done following a circular of central board of Excise and customs early this month.
Moreover the money changers will be also asked to prepare the database for five years of all the transactions.
Earlier money changers had made a plea to the CBEC that they should be exempted from paying service tax, as the operations only involve selling and purchase of foreign currency and they do not deal in it.
Money changers engage in purchase and sale of foreign currency for the retail market following the implementation of the KYC norms in the banks, the RBI feels that money changers deal in huge volumes of foreign currency business on a daily basis.
More from rediff