Indian bank customers will soon have to spend more to do banking. That’s because the Prime Minister’s Office (PMO) refused to intervene after multiple meetings by Indian Banks’ Association (IBA) with the Finance Ministry failed to draw up a conclusion.
Certain services may become costlier as banks may not only ask customers with minimum-balance accounts to pay up for free services like chequebooks and ATM cards but also increase charges across the board to pay a retrospective tax.
Over the past two months, the tax department has issued preliminary notices to banks seeking to levy Goods and Services Tax (GST) on services such as issuing cheque books and additional credit cards, ATM usage and refund of fuel surcharge. The GST notices are separate from those served in April to recover about Rs 40,000 crore in service tax and penalties from all banks, reports said
IBA had sought PMO’s help against this demand to pay GST on those banking services.
In fact, the PMO has asked banks to respond to show-cause notices issued by the Directorate General of Goods and Services Tax Intelligence.
Currently, banks charge customers with no-frills or zero-balance accounts for services like cheque books and ATM cards, but provide them free to those who have accounts that require a minimum balance.
Most of the major banks have agreed to start charging 18 percent GST on the free services. However, each bank would look at charging their customers based on the demand for those free services.
Tax authorities are of the view that banks need to pay tax on such a free service provided in the past.
According to reports, the principal amount sought from all banks put together is Rs 15,000 crore and is expected to increase to about Rs 35,000 crore if interest and penalty is added.
The IBA being the lobby entity for all banks, held several meetings with the Finance Ministry on the issue. Its representatives met PMO officials this week and the PMO seems to be keen on recovering the tax, said the official quoted earlier who was present in the meeting.
IBA confirmed that banks have informed the Reserve Bank of India (RBI) that they will need to recover the tax from customers for the last five years and pay to the Government as there was no other alternative.
This comes at a time when banks are also struggling to deal with their large pile of bad loans of over Rs 10.5 lakh crore, impacting their profitability.
The service charges may ease pressure on the bank’s but could pinch the customers.