Charges for ATM transactions, cheques & cards

Tax authorities have advised the top Banks, in the country including SBI, ICICI, HDFC and others, to pay tax which could amount to thousands of crores, on account of free services extended to customers who maintain a minimum balance with retrospective effect.  Accordingly necessary notices have since been issued to the Directorate General of Goods and Services Tax Intelligence (DGGST) and the suit to be followed with other banks. The notification adds the following points:

1. Tax will be levied for the last five years. This period is the one for which past service tax cases can be opened.
2. Tax is being calculated after taking into account charges recovered by banks from customers who failed to maintain minimum account balance. This charge made in each account for those who keep a minimum balance is considered deemed value of the service being provided by the bank to its customers and tax are being levied on this amount.
3. The banks in turn feel that it will be too much a burden on the customers, as the time goes and more so paying it with retrospective effect is another issue. Hence they plan to take up the matter with the Government for a resolution.
4. Banks taking these charges would be show caused.
5. These notices also cover the period prior to launch of GST when service tax was levied.
6. The total tax liability is roughly estimated to be Rs. 6,000 crore which the bankers feel would be much more.

Banks inform that they are in the process of consulting the experts before a decision can be taken in the matter.

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,

Service Factor:

• Initiation of inquiry into various services offered by banks to their customer where they charge their customers or on schemes charges are levied or it may be bundled free with accounts where customer is required to maintain a minimum balance.
• Fee-based services can be broadly described as:
  • 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 such services provided by the bank in terms service tax valuation rules.
• It may be recalled that SBI in November 2017 had collected Rs. 1,771 crore from its customers who failed to maintain the minimum balance.

RESULTS:

1. Banks might be required to shell down tax for the past period, which is up to five years in case of Service Tax.
2. This amount can be claimed as input tax credit and can be offset against other tax liabilities.
3. In other terms, as in other cases, this tax liability is sure to get passed on to customers.
4. Further, this issue has wide range of effects on the banking sector, and hence should be viewed very cautiously.
5. Since the issue is very sensitive and big, it is felt that Government should obtain legal opinion well examined and take a consensus view.
   Paying of service tax for the past period otherwise means, the burden would fall onto the consumers.