In a notice served earlier this month, top banks such as HDFC, ICICI, Axis Bank, State Bank of India and Kotak Mahindra Bank were asked to pay service tax, penalties and interest on the free services like ATM transactions, cheques and cards services offered to customers. The tax department has notified these banks to pay tax on the free services provided to customers who maintain a minimum account balance. Now if this didn’t shock you, there is more. Banks will have to pay this service tax on a retrospective basis for the last five years. If the tax department’s diktat is upheld, banks are worried as they cannot retrospectively recover tax from us. So we would have to bear the burden going ahead if the tax is upheld. The amount is as much as 40,000 crore rupees. Needless to say that this has come as a bolt out of the blue to a banking system already reeling under an enormous amount of bad loans and NPA’s.
