Your bank could soon charge you for ATM transactions, cheques & cards

Your bank could soon charge you for ATM transactions, cheques & cards

The tax department has asked country's top lenders including State Bank of India, HDFC Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank to pay tax that could run into thousands of crores, on 'free services' provided to customers maintaining a minimum account balance, with retrospective effect 

Show cause notices have been issued by the Directorate General of Goods and Services Tax Intelligence (DGGST) and is likely to be made on other banks as well. 

The tax will be levied for the last five years, the period for which past service tax cases can be opened, said a senior official aware of the details. 

The tax is being calculated after taking into account charges recovered by banks from customers who do not maintain a minimum account balance. This per account charge, for those who keep a minimum balance, is being considered as the deemed value of the service being provided by the bank to its customers and tax is being levied on this amount. 

Banks are worried as they cannot retrospectively recover tax from customers. Customers would have to bear the burden going ahead if the tax is upheld. Banks are likely to contest claims of the department and also take it up with the government, an official with a lender that has received the notice said. 

"Some notices have been issued and some are in the process of being issued. All banks taking these charges would be show caused,” the official said. 

“We are in receipt of the said notice, which we understand, relates to an industry-wide matter. We are, currently, engaged with experts to evaluate the observations made in the SCN” (show cause notice),” said an Axis Bank spokesperson. 

Emails sent to SBI, HDFC Bank, ICICI Bank and Kotak Mahindra Bank did not elicit any response. 

“These notices also cover period prior to launch of GST when service tax was levied," said another official privy to the development. 

Total tax liability could be about Rs 6,000 crore according to this official, but bankers fears it could be much more. 

Service element 

The DGGST had initiated an inquiry into various services offered by banks to their customers for which they collect some charges or come bundled free with accounts where customer is required to maintain a minimum balance. 

Fee-based services include ATM transactions beyond a certain number, refund of fuel surcharge, issue of cheque books and debit card among others. These levies are, however, waived off for accounts that maintain a certain minimum balance or for privileged customers. These services or benefits to customers are treated as a 'deemed service' under the Service Tax law. 

The DGGST has presumed the charge recovered by banks in case of non-maintenance of minimum account balance as the value for such services provided by the bank in terms service tax valuation rules. 

To get an idea of the amount involved, the State Bank of India had in April-November 2017 collected Rs 1,771 crore from customers not maintaining minimum balance. The bank has reduced the charges from the current fiscal. 

Banks may have to cough up tax for past period, which in case of service tax goes to up to five years. "They can claim it as input tax credit and offset it against their other tax liability," said one of the officials quoted above. 

Like in other cases, this tax liability is sure to get passed on to customers. 

Tax experts say this issue needs to be looked at carefully as it has wide ramifications for the banking sector. 

"Banks provide banking services in all cases, including where customers are required to maintain minimum balance. To break it in various components and infer it to be a distinct service does not seem to be the intention of the law," said Pratik Jain, indirect tax leader at PwC. 

ain said given the magnitude of the issue, the government should get it legally examined and take a considered view before taking the proceedings further. 

“If service tax has to be paid for the past period, ultimately the burden would fall onto the consumers," he said. 

Source:-The Economic Times