Thursday, December 29, 2005

Tax net may get wider for credit card services

The Central Board of Excise and Customs is examining the possibility of making a case for charging service tax with retrospective effect from 2001 on "service charges" and "commissions" received by banks on services rendered in relation to credit cards.

According to officials, several banks including American Express, SBI, Standard Chartered, ICICI and HSBC could come under the scanner of the revenue department regarding the collection of such charges.

The argument of the department is that service charges recovered by the banks on account of swiping of credit cards and commissions received by the visa or master cards or the card issuing bank fall in the category of services.

These are, therefore, amenable to service tax under the category of "banking and financial services" with effect from July 2001, they said.

The Indian Banks' Association has already expressed to the government its opposition to the proposal.

"Technically, this is a sort of funding arrangement with merchant establishments. Besides, this was not mentioned in the coverage of service tax at the time the circular was issued by the government. It is not a fee that banks are receiving during their dealings with customers," sources said.

So, next time when you pay service charge for swiping your credit card, you might face an additional charge of 10.2 % towards service tax.