21 May 2018Posted By: Mudit Handa


How will Free Banking Services be treated under Goods & Service Tax Regime?

The impact of GST on the economy has been constructive and productive thus far, as can be perceived from the rising tax revenue and resultant fiscal consolidation like never before. With over 1 crore Indian businesses already undergone the online GST registration process in India since the beginning of the GST Regime, the pace of economic reforms seems to be optimistic than ever.

Till date, almost all goods & services have included under the ambit of GST. However, certain services that are indispensable for the general public must not be taxed as this can increase the burden on common man’s shoulders. Keeping this view in mind, the GST Authorities have decided to keep the free banking services such as the issuance of chequebooks, credit/debit cards and ATM withdrawals etc. out of the GST purview.

#1. Will the banking services be taxed under GST?

In the wake of the recently held 27th GST council meeting, Department of Financial Services has cleared all doubts regarding imposing GST on the free banking services. It has stated that such services are likely to remain out of the GST ambit.

#2. What is the current scenario regarding indirect tax on free banking services?

Till now, the banking services were charged service tax as per the following schedule-

 

Particulars

Rate of Tax

Service Tax

10% of the value of services

Education Cess

2% of the service tax payable

Secondary and Higher Education cess

1% of the service tax payable.

 
 

#3. How did the matter gain the attention of Revenue Department?

The commercial banks were constantly receiving service tax notices for the period 2012-2017 for non-payment of service tax on free banking services. The notice was however served as tax officials had argued that banks were asking their customers to maintain a minimum account balance. Hence, they were not offering them any ‘free service’  and were actually charging them by way of maintenance of minimum account balance.

 

#4. How was the decision taken?

Amid the banks getting service tax notices, the Department of Financial Services (DFS) had contacted the Department of Revenue Services and had sought clarity on the issue of banking services would attract GST.

 

#5. What conclusion has been reached in this regard?

The DFS had raised the point that since banking services like issuance of chequebooks, bank statements, banking instruments and ATM withdrawals are not regarded as commercial activities as they are free up to some extent, thus they cannot be brought under the purview of GST as other commercial activities that are carried out by the traders who have undergone GST registration.

Being non-commercial services, the free banking services are likely to remain out of the GST ambit.

 

In case you need any other guidance regarding GST registration in India, feel free to contact us at 8881-069-069.




 

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