In the past two months, the tax department issued preliminary notices to banks seeking to levy Goods and Services Tax (GST) on services such as cheque books, additional credit cards, ATM usage and refund of fuel surcharge, Economic Times has reported. Top banks including State Bank of India (SBI), ICICI Bank and HDFC Bank are planning to pass on the cost to customers.
The tax department has sought to tax free services offered by banks as it believes that they have a “deemed value”. According to this concept, customers are maintaining a minimum balance in their accounts to get some free services, which is hence taxable. GST will be calculated by considering charges paid for such services by customers who do not maintain a minimum account balance.
“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. 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,” VG Kannan, CEO of the Indian Banks’ Association, told Economic Times.
Most of the banks have agreed to charge 18 per cent GST on free services identified by the tax department. One top bank official who spoke to Economic Times said that smaller banks like his would wait until the bigger ones come up with a method to charge their customers. Tax experts believe that this principle could affect other industries, which provide some free services to their customers.
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