The Banks may soon charge 18 percent GST on the freebies provided by them to the customers who maintain a minimum balance in their accounts.
According to reports, reeling under a pile of bad loans and faced with the prospect of paying GST on ‘free services’ given to customers, private and public banks like ICICI Bank, HDFC Bank and State Bank of India (SBI) are considering passing on this cost to them, according to a report.
It was reported in October that the GST department has issued service tax notice to banks for non-payment of the levy on free services. Following this, the revenue department had approached the Financial Services department seeking clarification as to whether these services would be subject to GST.
Following this, a Senior Financial Official from the Finance Ministry reportedly confirmed that free banking services like checkbook issuance and ATM withdrawals are likely to remain out of the ambit of the Goods and Services Tax.
If the banks are charged for these services, the customers may have to pay a higher tax for holding a minimum balance account. According to the report, major banks have agreed to start charging 18% GST on the free services.
“We have agreed in principle that we would start collecting GST from customers. The mechanics need to be worked out, but since we are not that big in retail banking, we will wait for the larger banks to come out with a methodology,” said the tax head of a multinational bank.
Earlier, in the month of April, the Central Board of Indirect Taxes and Customs (CBIC) came out with a 32-page document covering frequently asked questions (FAQs) on the applicability of the Goods and Services Tax (GST) on the banking sector, after brouhaha ensued when banks were slapped with a service tax notice for non-payment of service tax – plus interest and penalty – on some of the free services extended to their customers.
It was clarified that where the services are supplied by a supplier without consideration to an unrelated recipient or a person other than a related or distinct person, the same would not amount to supply and not liable to GST. Also, any interest/ delayed payment charges charged for delay in payment of brokerage amount/settlement obligations/margin trading facility shall be leviable to GST. It further clarified that the exemption from levy of GST on interest specifically excludes interest charged on outstanding credit card balances.
According to the FAQs, third party places such as third-party ATMs, Business Correspondents (BC), Customer Service Points (CSP) or third party warehouses used as per RBI guidelines are neither places of business nor fixed establishments from where Banks ordinarily carry on their business. These are independent service providers to the Bank which are subject to GST. Thus, these places are not required to be declared as the place of business by the Bank.
