As per the latest reports, the tax department has asked some top money lenders like HDFC Bank, Kotak Mahindra, SBI, and ICICI to pay tax on free services provided to the customers. This tax may amount to thousands of Crores and will be charged with retrospective efforts on services provided to the account holders who maintain a minimum account balance.
Reportedly, the Directorate General of Goods and Services Tax Intelligence (DGGST) has issued show cause notices to some banks while some others are yet to receive the notices. A senior official said that the tax will be levied for the last 5 years. While some officials say the amount could be as high as INR 6,000 Crores, others think it might be even more.
The tax amount is being calculated by taking into account the charges that banks have recovered from those who don’t maintain a minimum account balance. For those who maintain a minimum balance, per account charge is being considered as the deemed value of the services rendered by the bank upon which the tax will be imposed.
Since the banks are less likely to recover taxes from the customers with retrospective effect, the burden might ultimately fall on the customers if the tax is upheld. Reportedly, the banks are planning to contest the claims of the tax department and take the matter with the government.
The fee-based services provided by banks include ATM transactions beyond a certain limit, issue of cheque books and debit cards, refund of fuel surcharge, etc. Those who maintain a minimum account balance are not charged any fee and are instead provided ‘deemed service’ under the Service Tax Law.
Much like any other tax, this one is also bound to be passed on to the consumers. As per the tax experts, the issue has wide ramifications for the banking sector. Pratik Jain, an Indirect Tax leader said that the government should legally examine the issue before taking on the proceedings.