GST on Bank Charges — Updated Guide on Tax Rates & Applicability

Each year, Devam’s bank takes ₹5,000 for charging the services related to maintaining his accounts. This price covers the cost of GST. ( Banks charge fees for their services, and GST is added to these fees )

Here’s how it breaks down:
 

The cost of the service is originally ₹4,717, and then an amount of ₹283 (about 18%) GST is added, bringing the total to ₹5,000. This yearly fee is paid by Devam. GST is always part of bank fees when you use such services.

Read More - Impact of GST on Small Businesses

Since the government collects taxes, banks can cover their costs from other sources. Check your bank statement regularly to review the details about your GST.

GST on Bank Charges

Almost all the services at banks involve a fee, and the GST is applied to almost all of them. Devam can be a good example. His bank takes away many charges, and GST is added to these charges. You can find below an easy-to-understand chart of the typical bank charges and the GST charged on them.

Example: Devam’s Bank Charges (Yearly)

 

• Account Maintenance Fee: ₹1,000 + 18% GST = ₹1,180
   
• Debit Card Annual Fee: ₹200 + 18% GST = ₹236
   
• Cash Withdrawal (Non-Home Branch): ₹20 per transaction + 18% GST = ₹23.60 per withdrawal
   
• Cheque Book Charges: ₹50 (for 25 leaves) + 18% GST = ₹59
   
• NEFT/RTGS Transfer Fee: ₹5 to ₹25 (depends on amount) + 18% GST

GST Rates on Common Bank Charges:
 

Key Points
 

• Most bank services attract 18% GST.
   
• The actual fee is lower, and GST is added on top.
   
• Devam’s total yearly charges (including GST) may look like this:
   
  • Account Fee: ₹1,180
     
  • Debit Card: ₹236
     
  • Cheque Book: ₹59
     
  • Total = ₹1,475 (instead of ₹1,250 without GST).

Verify your bank statement continuously to know the amount of GST paid. Doing this shows how your money is being spent.

HSN Codes for Bank Charges

Banks offer different services, and every service requires its own GST code. HSN (Harmonised System of Nomenclature) is used to order services under the GST system. Here, I have given simple explanations of popular bank fees and the proper HSN codes, using Devam’s example.

Example: Devam’s Bank Services & HSN Codes
 

• Account Maintenance Fee: HSN 9971 (Banking and Financial Services)
   
• Debit Card Annual Fee: HSN 9971
   
• ATM Cash Withdrawal Charges: HSN 9971
   
• Cheque Book Charges: HSN 9986 (Other Miscellaneous Services)
   
• NEFT/RTGS Transfer Fee: HSN 9971
   
• Loan Processing Fee: HSN 9971
   

HSN Codes for Common Bank Charges:
 

Key Points
 

• Most banking services fall under HSN 9971 (Financial Services).
   
• Chequebook charges may fall under HSN 9986 (Other Services).
   
• The GST rate is 18% for almost all bank charges.
   
• Devam’s bank statement shows these HSN codes in the tax invoice.

This helps in proper GST filing and understanding how bank charges are taxed. Always check your bank’s invoice for correct HSN codes.

Types of Bank Charges and Their GST Applicability

Banks levy various fees for their services, and most attract GST (Goods and Services Tax). Below is a simple breakdown of common bank charges and their applicable GST rates.

Example: Devam’s Bank Charges
 

• Account Maintenance Fee: 18% GST
   
• Debit Card Annual Fee: 18% GST
   
• ATM Withdrawal Charges (Other Bank): 18% GST
   
• Cheque Book Charges: 18% GST
   
• NEFT/RTGS Transfer Fee: 18% GST
   
• Loan Processing Fee: 18% GST
   
• Demand Draft (DD) Charges: 18% GST
   

GST Rates on Common Bank Charges:
 

Key Points
 

• Most banking services attract 18% GST (like account fees, card charges, transfers).
   
• Interest on loans and late payment penalties are exempt from GST.
   
• Devam’s bank deducts GST on service fees but not on loan interest.

This helps customers understand why GST is charged on some bank transactions and not others. Always check your bank statement for tax details.

Impact of GST on Bank Charges

GST has changed how banks charge customers for services. Here’s how it affects people like Devam:

• Higher Costs for Customers: Before GST, some bank fees had lower taxes. Now, most services like account maintenance, debit cards, and transfers have a flat 18% GST. Devam pays ₹1,180 instead of ₹1,000 for his yearly account fee.
   
• Simplified Tax System: Earlier, different taxes like service tax and VAT were applied. Now, only GST is charged, making bills clearer. Devam’s bank statement shows one tax (GST) instead of multiple taxes.
   
• More Transparency: Banks must show GST separately in invoices. Devam can now see exactly how much tax he pays on each fee, like ₹180 GST on his ₹1,000 debit card fee.
   
• No GST on Penalties: Late fees or fines don’t have GST. If Devam misses a loan payment, the penalty is ₹500 with no extra tax.

As a result of GST, taxes in the banking system are easier, though customers must pay an extra fee. Be sure to go over your bank records to observe the GST payments.

Also Read – GST on Currency Exchange

Input Tax Credit (ITC) on Bank Charges

Devam’s shop can use the GST paid on their bank charges as an Input Tax Credit (ITC). This is how the process takes place:

• What is ITC? When Devam pays GST on bank fees, he can subtract this tax from his business's GST payments.
   
• Eligible Charges: GST paid on account fees (₹180), debit card charges (₹36), and transfer fees can be claimed.
   
• Non-Eligible Charges: Penalty fees without GST cannot be claimed.
   
• How Devam Benefits: If his shop collects ₹5,000 GST from customers and pays ₹500 GST on bank charges, he only pays ₹4,500 to the government.
   
• Record Keeping Needed: Devam must save all bank tax invoices to claim ITC during GST filing.
   

This way, Devam only needs to pay the right amount of GST and decrease her tax liability. All companies need to keep track of every GST payment they make to the bank.

FAQs on GST for Bank Charges

1. Do all bank charges have GST?

Most bank charges like account fees, debit card fees, and transaction charges have 18% GST. However, penalty charges (like late payment fees) don’t have GST.

2. Why am I paying GST on my bank account fees?

Banks provide services, and GST applies to these services just like to other things you buy. So, if your annual account fee is ₹1,000, you pay ₹1,180 (including ₹180 GST).

3. Can I avoid paying GST on bank charges?

No, GST is mandatory on taxable bank services. Only penalties (like bounced cheque charges) don’t include GST.

4. How is GST calculated on ATM withdrawals?

If your bank charges ₹20 for using another bank’s ATM, GST (18%) of ₹3.60 is added, making the total charge ₹23.60.

5. Do savings account holders pay GST?

Yes, even savings accounts have GST on fees like account maintenance, debit card charges, and chequebook costs.

6. Is GST charged on loan processing fees?

Yes, loan processing fees include 18% GST. If the fee is ₹5,000, you pay ₹5,900 (₹900 GST extra).

7. Can businesses claim GST back on bank charges?

Yes, businesses can claim Input Tax Credit (ITC) for GST paid on bank fees if they file GST returns.

8. Why is there no GST on penalty charges?

Penalties (like late fees) are not considered a service, so GST doesn’t apply.

9. Where can I see GST details in my bank statement?

Check your bank’s invoice or passbook—GST is usually shown separately under "Tax" or "Charges."

10. Has GST made bank charges more expensive?

Yes, since most fees now have 18% GST, customers pay slightly more than before. However, the tax system is simpler now.