"We will write to the revenue department on the issue of imposition of tax - service tax and goods and services tax (GST) on banks for some free services they offer to customers," DFS secretary Rajiv Kumar told reporters.
He said that the services, offered free of cost, were entitlement of customers and taxing such facilities is not legally tenable.
"To our mind, it's not a service. The banks are already earning some income by offering certain services to customers who maintain a minimum balance in their accounts," the secretary said.
Kumar said the issue would be sorted out once the two departments sit together and discuss the matter in detail.
Revenue department officials argue that banks are not offering 'free services' but actually charging customers by asking them to maintain a minimum account balance.
"In business nothing is free.
They penalise you for not maintaining a minimum balance because from the interest of that money you maintain, they service you. It is not free," a key revenue department official had told Business Standard on Thursday.
Directorate General of Goods and Services Tax Intelligence (DGGSTI) offices had issued notices to at least 20 private, multinational and public sector banks, to explain why they should not pay service tax, penalty and interest on 'free services' offered to customers between July 2012 and June 2017, a period prior to the rollout of GST.
Even as the tax demand made by the DGGSTI may be withdrawn, following a common hearing of all the banks, the revenue department is of the view that the 'free services' will still attract GST.
Every bank specifies a different slab of minimum balance for customers to maintain, based on which 'free services' are provided. The tax demand was for customers maintaining a minimum balance in their deposits and availing of free services such as cash withdrawal from ATMs, cheque books, account statements, internet banking, debit cards and PIN change.