The Directorate General of Goods and Services Tax Intelligence (DGGST) has issued a show cause notice to top banks in the country which includes Kotak Mahindra Bank, Axis Bank, ICICI Bank, HDFC Bank, and State Bank of India (SBI). The notice will likely be issued to other banks/lenders as well. Tax will be levied on banks for the last 5 years. The time frame includes the Service Tax before the implementation of the Goods and Services Tax (GST).
Tax is to be levied on the service charges collected by the banks in the past 5 years on those accounts that don’t have a minimum balance. The show cause notice to top banks has the industry concerned about the huge amount of tax (which is approximately more than Rs.6,000 crore) that has to paid and so the banking industry will likely approach the government to contest it in the future. Meanwhile, the DGGST is looking into the range of banking services for which a service charge is collected by the banks from the customers.
Some of the fee-based services include issuance of debit cards and cheque books, refund of fuel surcharge, ATM transactions that exceed the set limit, etc. The service charges are waived off for those customers who maintain a minimum balance account. However, as per the Service Tax Law, the service charge waiver/benefit is considered a ‘deemed service’. Therefore, the DGGST will levy tax on the service charges/fees collected by the banks from customers who have failed to maintain a minimum account balance. For instance, SBI had recovered Rs.1,771 crore in service charges from customers who didn’t maintain a minimum balance account from April 2017 to November 2017.
Some experts are concerned that if this particular tax is upheld, the consumers will end up bearing additional costs for banking services along with the banks.