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.