The irked bankers are up in arms against the revenue authorities who are not ready to forgo Rs 40,000 crore that the former has been asked to pay as service tax levied on free services. Bankers have warned the government that free services would have to be withdrawn if they are forced to pay Rs 40,000 crore. The services that may be withdrawn include cheque leves, ATM withdrawals, cash deposits, monthly account, locker visits and even Prime Minister Narendra Modi’s pet Jan Dhan Yojana for financial exclusion.
Revenue authorities want banks to cough up tax (service tax plus penal interest plus penalty) for the 2012-2017 period. In April this year, a notice by the revenue authorities had asked banks to pay service tax, penalties and interest on free services offered to customers. The revenue authorities had made a retrospective demand – 12% service tax claimed since 2018, 18% interest on the amount and 100% penalty. The notice had forced the Indian Banks’ Association to start lobbying to ask the government to recall the demand that was termed “illogical” by many.
In June, the government had clarified that free services provided by banks to customers who maintain a minimum balance account will not be liable to GST. It had issued a detailed FAQ document, which, however, didn’t make any clarification on the service tax demand from banks.
Bankers now hope that government and the banks would reach an amicable solution that doesn’t hit the common man.
