In June, in the face of the brouhaha that had erupted after the
Directorate General of Goods and Services Tax Intelligence asked the
already struggling banks to pay taxes on their free services from 2012
onwards, the government had been compelled to backpedal.
But it is now making a U-turn. According to The Economic Times, over the past two months, the tax
department had issued preliminary notices to domestic and multinational banks seeking to levy GST on services such as issuing cheque books and additional credit cards, ATM usage, refund of fuel surcharge, and the like. These are all services that have so far been extended to customers who maintain a minimum balance in their account for free - only customers with no-frills or zero-balance accounts were charged for such services.
With the profitability of Indian banks already under considerable pressure, top lenders including State Bank of India, ICICI Bank and HDFC Bank are reportedly considering passing on this cost to customers.
"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," VG Kannan, CEO of the Indian Banks' Association, told the daily. "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."
According to the tax department, the free services that customers maintaining a minimum balance in their accounts have hitherto been enjoying have a "deemed value" and are taxable. The applicable GST will be calculated taking into account the charges paid for such services by the other banking customers.
Citing sources in the know the report added that most of the major banks have agreed to start charging customers 18% GST on the free services, perhaps as early as December - and foreign banks and the smaller players will wait to take their cues and methodology from the larger banks.
The bottomline is that irrespective of what kind of account you hold, banking is likely to get costlier in the near future. In fact, the buzz is that banks may not only ask customers to pay up for the free services received in the past five years but also increase charges across the board to pay a retrospective tax.
The principal amount that the taxman has sought from all the banks put together is around Rs 15,000 crore, BloombergQuint reported, adding that it is expected to increase to about Rs 35,000 crore after factoring in interest and penalties.
The highest tax liability notice of about Rs 6,500 crore was served on HDFC Bank Ltd., while ICICI Bank Ltd., Axis Bank Ltd and State Bank of India Ltd. were asked to pay Rs 3,500 crore, Rs 2,500 crore, around Rs 1,000 crore, respectively, the portal previously claimed. Even foreign banks like DBS Bank and Citibank have reportedly been slapped with the GST notices. Significantly, these new notices are separate from those served in April to recover about Rs 40,000 crore in service tax and penalties from all the banks.
According to experts, the tax department's logic in determining the value of free services provided under the contract between a bank and its customers may not only lead to other complications but also prompt similar notices in other sectors such as telecom, real estate and advertising. After all, extending the same principle, all other sectors that extend volume or other types of discounts could also be served tax demands.
"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," MS Mani, a partner at Deloitte India told the daily.
But it is now making a U-turn. According to The Economic Times, over the past two months, the tax
department had issued preliminary notices to domestic and multinational banks seeking to levy GST on services such as issuing cheque books and additional credit cards, ATM usage, refund of fuel surcharge, and the like. These are all services that have so far been extended to customers who maintain a minimum balance in their account for free - only customers with no-frills or zero-balance accounts were charged for such services.
With the profitability of Indian banks already under considerable pressure, top lenders including State Bank of India, ICICI Bank and HDFC Bank are reportedly considering passing on this cost to customers.
"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," VG Kannan, CEO of the Indian Banks' Association, told the daily. "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."
According to the tax department, the free services that customers maintaining a minimum balance in their accounts have hitherto been enjoying have a "deemed value" and are taxable. The applicable GST will be calculated taking into account the charges paid for such services by the other banking customers.
Citing sources in the know the report added that most of the major banks have agreed to start charging customers 18% GST on the free services, perhaps as early as December - and foreign banks and the smaller players will wait to take their cues and methodology from the larger banks.
The bottomline is that irrespective of what kind of account you hold, banking is likely to get costlier in the near future. In fact, the buzz is that banks may not only ask customers to pay up for the free services received in the past five years but also increase charges across the board to pay a retrospective tax.
The principal amount that the taxman has sought from all the banks put together is around Rs 15,000 crore, BloombergQuint reported, adding that it is expected to increase to about Rs 35,000 crore after factoring in interest and penalties.
The highest tax liability notice of about Rs 6,500 crore was served on HDFC Bank Ltd., while ICICI Bank Ltd., Axis Bank Ltd and State Bank of India Ltd. were asked to pay Rs 3,500 crore, Rs 2,500 crore, around Rs 1,000 crore, respectively, the portal previously claimed. Even foreign banks like DBS Bank and Citibank have reportedly been slapped with the GST notices. Significantly, these new notices are separate from those served in April to recover about Rs 40,000 crore in service tax and penalties from all the banks.
According to experts, the tax department's logic in determining the value of free services provided under the contract between a bank and its customers may not only lead to other complications but also prompt similar notices in other sectors such as telecom, real estate and advertising. After all, extending the same principle, all other sectors that extend volume or other types of discounts could also be served tax demands.
"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," MS Mani, a partner at Deloitte India told the daily.
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