No more free services? Why you should brace for additional bank charges

The current issue is about service tax, but it has even more serious implications under the GST regime

A recent new item – banks could be slapped a service tax liability of Rs150 billion for providing “free” services – should worry customers. After all, if one goes by historical evidence, banks would pass on these charges to customers. 

So, what is the issue? The current issue is about service tax, but it has even more serious implications under the Goods and Services Tax (GST) regime. The banks provide a bundle of free services like a certain number of cheque leaves (for example) to most of their consumers maintaining a certain minimum balance with them. At the same time, they charge a certain sum of money (say, Rs 20 for a chequebook of 20 cheque leaves) to the holders of basic savings accounts with them. 

The erstwhile service tax department (now merged into the GST) has argued that the “free” cheque book services provided by the bank to its more-monied customers is not really free and is bundled in the minimum balance required to be kept by the consumers. Hence, they have computed the value of such “free” services as the price, which is charged to the basic savings account holders and computed service tax liability, on that basis. Since the matter dates back several years, the liability computed only in respect of past instances reportedly works out to Rs150 billion or so. If this liability is finally crystallised, it will put a tremendous additional strain on the already-strained balance sheets of banks, especially since they will not be able to recover it from the clients. Also, the liability of GST on similar basis in the future will be much heavier and guess what – we, the consumers, will have to grin and bear it.  

If the past is any indication any such occasion will be used by banks to push up the already-high bank charges to an even higher level. This time they will have the fig leaf of the heavy liabilities imposed by the service tax/GST department.  In the absence of any guidelines, governing bank charges or any audit of the reasonability of such charges, we will be forced to pay through our noses for any such liability on the banks in respect of the past and the future. 

All representations made by the banking fraternity seems to have been in vain and the matter is headed to the courts. It almost seems as if a resource-starved government may yet force retail banking consumers to pay through this “innovative” taxation method to fund the recapitalisation requirement for the banks arising from the corporate non-performing assets and the gigantic frauds played on the banks. 

The only saving grace is that legal sources familiar with the matter feel that the banks have a strong case, and it is most likely that this liability will not be upheld in a court of law. But it is a long battle ahead and consumers need to put pressure on the government to come out with suitable clarifications so that the matter is cleared up.

The writer is a Sebi-registered investment advisor