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It’s Official: No GST on free banking services

Nov 11, 2019 | 3 months ago | Read Time: 2 minutes | By iKnowledge Team

Having just completed a year with GST by our side, the reform has been getting a positive response from across the country. This major indirect tax reform introduced last year comprises of an integrated indirect tax pertaining to state and Centre. Instead of different taxes as levied in the past, GST is a much comprehensive tax, applicable on manufacture, sale and consumption of goods and services all over the country. It’s primarily a consumption tax related to the value addition and is levied at every transactional stage in the supply chain. GST has made financial planning vital both for individuals and institutions alike.

Tax Slabs

For its smooth functioning, the government announced a four-tier rate structure comprising of fixed slabs at 5%, 12%, 18% and 28%. Additional cess will be added to luxury goods that already fall under the 28% tax bracket. Amongst all the slabs mentioned above, 12% and 18% are the most common ones. 

The GST Journey

Though we have completed a year, the initial days of getting adjusted to this new taxation system were not easy. There was much ambiguity in major areas concerning finance, with banking being one of them. As soon as the new taxation was imposed, banking institutions started levying GST charges even on free services offered to the customers. These included cash withdrawals, account statements, debit card usage and internet banking. All of us know that banks mandate a certain amount of minimum balance in deposits against the free services they offer. If the minimum amount was not met, other sets of charges were levied onto the customers.

Prompt clarification from the finance ministry

Ideally, no one is to blame as there wasn’t any clarity. The finance ministry, to clear the air, issued 32 pages of “Frequently Asked Questions” for the financial sector, which covered all the elements relating to CGST. Central Board of Indirect Taxes and Customs (CBIC) clarified that no taxes are to be levied on services

According to Business Standard, a senior finance ministry official said, “Free banking services like chequebook issuance and ATM withdrawals are likely to remain out of the ambit of the GST.”

Does ATM trigger GST registration?

They also clarified that ATMs do not trigger a GST registration liability as business is not conducted therein. Apart from ATMs, derivatives, future contracts are not subject to GST. Only services charges or brokerage fall under the tax bracket.

What are the major points covered under the FAQs?

  1. ATM Machines do not require GST registration
  2. Services provided by banks to RBI are liable to GST
  3. Additional interest charged for default in payment is liable to GST
  4. Future, derivatives and forward contracts are not subjected to GST
  5. Term insurance policies issued to Non-Residents of India (NRI) & the premium received is applicable for tax

No GST on free banking services

After the official statement issued by the finance ministry, the notices were sent to common adjudicating authority so to prevent the banks from charging unnecessary amount. The finance ministry officials said that banks are already charging the customers by mandating the minimum balance and applying the penalties if they are unable to do the same. To know about Aegon Life’s life insurance products like health insurance and other products, visit our home page.


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