Banks such as State Bank of India, HDFC Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank are among those, who have been asked to pay this tax.
The entire banking industry in India is right now pondering over a major question: Who will pay for banking services such as ATM withdrawals and cheques now?
This question has popped up, after a major decision by Directorate General of Goods and Services Tax Intelligence (DGGST) concerning ‘free’ banking services.
Now, the way banks respond this new tax directive can alter so many things for the consumers, and for the entire industry.
Free Banking Services To Be Taxed Now?
In a surprise move, Directorate General of Goods and Services Tax Intelligence (DGGST) has contacted all leading banks and asked them to pay tax on the ‘free services’ offered by them to customers.
Banks such as State Bank of India, HDFC Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank are among those, who have been asked to pay this tax. Other banks shall be soon contacted for the same.
As DGGST directive, retrospective tax, dating back to 5 years have been asked to pay.
An official said,
“Some notices have been issued and some are in the process of being issued. All banks taking these charges would be show caused..”
Now, banks are wondering how to collect this tax from customers. And if they are not able to collect, they will need to pay it.
Some reports indicate that banks will appeal against this new form of taxation.
What Exactly Is Being Taxed Here?
Every bank charges an amount from their customers if the minimum balance is not maintained. In lieu of this charge, banks provide basic banking services such as ATM withdrawals, chequebooks, online banking etc.
In case the customer maintains the minimum balance, then no extra charge is deduced, and the banking services are anyways offered.
Now, the tax authorities have determined that these services offered by banks have to be charged.
In case a bank incurs revenue after charging customers for maintaining low account balance, then tax on that amount has also been provisioned.
Last year in April-November, SBI collected Rs 1,771 crore charge for low balance maintenance fee, and such types of collections can now face tax scrutiny.
As per some estimates, banks can now be liable to pay up to Rs 6000 crore as tax, for the banking services and revenues from low balance charges.
An Axis Bank spokesperson has confirmed this new development, as he said,
“We are in receipt of the said notice, which we understand, relates to an industry-wide matter. We are, currently, engaged with experts to evaluate the observations made in the SCN.”
Banks are in huddle mode now, and trying to understand and figure out how to manage this: Charging this tax from the customers can backfire, as they are already paying for these services.
We will keep you updated.