Banks are in a lot of trouble. Non-performing assets are rising. Businessmen Nirav Modi and Vijay Mallya have defrauded banks of crores of rupees and have escaped abroad. Now, the tax department has dropped a bomb on banks. It has asked leading banks like SBI, HDFC Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank to pay tax on free services provided to you and other customers, who maintain a minimum account balance with them. This is with retrospective effect and could run into Crores of Rupees.
This tax will be charged for the last 5 years. Want to know more on deposits and loans? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.
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1. How does the tax department calculate the tax for banks?
This tax is calculated, based on the charges banks recover from customers, who have not maintained a minimum balance with them. So how does the tax department calculate the tax for banks? Banks are offering a number of free services to customers who keep a minimum balance with them.
The tax department has considered the deemed value of these services, which banks provide to customers who maintain the minimum account balance with them and levies tax on the amount.
This tax is retrospective. Banks are really worried that they will not be able to recover tax, retrospectively from customers. Banks are likely to contest these charges and take up this issue with the Government. The total expected liability is expected to be in the range of Rs 6,000 Crores, but bankers fear it could be much more.
SEE ALSO: Why India Needs Payment Banks?
Banks charge a variety of fees to you and other customers. These fees are charges on ATM transactions beyond a certain number of free transactions, fuel surcharge refunds, charges for issue of cheque books /debit cards and so on. But, banks do not charge these fees for customers who maintain a certain minimum balance with them, well-heeled and privileged customers.
According to the Service Tax Law, the services/benefits offered to these customers are called ‘deemed services’. The Directorate General of Goods and Services Tax Intelligence (DGGST) has made a presumption, that the charges which banks have recovered from customers who have not maintained the minimum balance = the value of such services provided by the bank for service tax valuation purposes. Tax will be charged on this amount.
This is not a small amount. SBI had in April-November 2017 collected Rs 1,771 Crores from customers who had not maintained the minimum balance. Other banks could have collected similar amounts. Banks would have to pay taxes on this amount not only for the current period, but also the past period which could be for 5 years. This tax liability would eventually be transferred to customers.
What does this mean? Well banks will pretty much charge you for everything. Be Wise, Get Rich.
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