The top loaners including the SBI, ICICI and HDFC banks who are facing problems about paying the GST (Goods and Services Tax) on free services which are given to customers who maintain the minimum balance in their account are deciding to pass the cost to the customers itself.
From past two months, the banks are getting notices from the tax department requesting to charge GST (Goods and Services Tax) on services like extra credit cards, issuing cheque-books, ATM usage and repayment of fuel surcharge. The GST notices sent are different from the notices which were given in April to reclaim about Rs 40,000 crore from all the banks in service tax and penalties.
Read Also: 7 Major Banking Services Attract Goods and Services Tax in India
VG Kannan, CEO of the Indian Banks’ Association, said “Most banks are now considering passing on the GST cost to the customer. This would be a pure pass-through and the amount would go directly to the government.” He also added, “How much the customer would be charged would differ from one bank to another as that would depend on how the free services are valued.”
As per the people who are aware of the matter, approx. all the major banks are ready to charge 18 percent GST on the free services. The tax head of a multinational bank said “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”.
The customers who are maintaining the minimum balance in their accounts will get some benefits of free services that are taxable and have a “deemed value”. GST will be computed taking into notice the taxes paid for free services by the customer who will not maintain the minimum account balance.
Tax experts said the notices have come even after clarifications were provided following the service tax notices to the banks in April.
The banks were served with the service tax notice still the notices of Dharmesh Panchal, deputy indirect tax leader at PwC India said “We understand that industry has represented to the ministry of finance. The GST FAQs also in a way accepts that free supply cannot be treated as consideration for maintaining minimum balances in bank accounts”.
Recommended: GST Charges For Cheque Bounce By Banks (Inadequate Balance & Non-Financial Reasons)
The same concept of tax demand must also be used in other sectors which gives data or discounts said Industry experts. MS Mani, a partner at Deloitte India said “Levy of GST on discretionary charges levied by banks for nonadherence of certain parameters would increase the cost to certain categories of customers, in addition to opening avenues for many more similar cases where charges are levied without any underlying services. Many other businesses will be watching the developments in this space as technically there could be a need to pay GST on such charges in terms of Schedule 2 of the CGST Act”.
The people who are familiar to the matter said that even DBS Bank, Citibank and multinational banks got the GST notice. ICICI Bank, SBI, HDFC Bank, DBS Bank Punjab National Bank, Axis Bank, and Citibank did not give any statement regarding this. Kanna of IBA said “Most banks could start charging GST from December. While banks would not pass on the service tax burden to customers for now, that too could happen in future as we think the revenue department is sticking to its position”.
If the same concept is applied to everyone then the same notice must also be sent to the telecom, advertising companies and real estate companies.
