Legal Question in Banking Law in India

Service Tax
As clearly stated in Rule 6(2) of Service Tax (Determination of Value) Rules 2006, any ''interest'' charged on the loans advanced cannot be included in the value of any taxable service,though service tax is leviable @12.36% on all services and fees.As such Service Tax is not applicable on the interest part of loan accounts. In this connection I wish to bring to to your kind notice that Credit Cards issued by banks, charge service tax on interest. When a card holder uses the card,say to an extent of Rs.10000/- the same is a borrowed fund from the bank as a loan. This can be either a purchase transaction or cash withdrwal from ATM. When the bank's funds are used in credit card transactions,technically and practically,it is a ''loan''. When interest on loan is exempted from the purview of Service Tax, whether their action is in conformity with the Act?. Kindly clarify the correct applicable position

Asked on 2/20/09, 4:45 pm

Aniruddha Pawse Aniruddha.P.Pawse Advocates

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Re: Service Tax

contact a tax practitioner

Answered on 2/21/09, 1:00 am

Sudershan Goel India Law Offices of Sudershan Goel - Advocate

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Re: Service Tax

Good question. If interest is outside the purview of service tax, the credit card company may also be debarred from making any charge.

Answered on 2/21/09, 1:20 am

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