CREDIT CARD TRANSACTIONS AND GST

5th July - CREDIT CARD TRANSACTIONS AND GST

GST has been in the limelight ever since it was proposed and it has more been so in the past few months. Recently on the midnight of June 30th, India’s most celebrated and most anticipated economic reform of the century finally rolled out at the famous Central Hall of the Parliament which hosted the massive launch witnessed by a number of senior Govt officials, Political leaders, Ministers, etc. And as it always goes with any big event, GST is surrounded by a plethora of speculations and hoax news, one of which was that credit card transactions will be taxed twice. The same was clarified by the Revenue Secretary Dr. Hasmukh Adhia as being false, and ensured that the news was baseless, urging public to confirm with the authorities before sharing any such matter. The double taxation on credit card transactions simply turned out to be a bogus news spread on social media to wreak havoc and cause confusion amongst the general public.

Though it is true that the tax rate on the use of Credit Cards has been hiked to 18% from the previous 15%, increasing the end cost accruing upon such payments, you can heave a sigh of relief that it will not be charged twice like the hoax claimed. The GST Council has also stipulated the tax slab of 18% upon other transactions like banking, insurance premium payments, etc. and the same shall apply to loan processing fee, fund transfers, ATM withdrawals (beyond the maximum number of free transactions), SMS alerts, issue of Cheque Books/DDs, etc. Banks and Insurance Companies have communicated the change to their customers via E-Mails or SMS, and the implication on the hike on public and the market is yet to be analyzed. Whether any eventual benefit accruing due to the availability of Input Tax Credit on items which were not previously subject to the benefit would in turn be transferred to the consumers, and if so, how much time would elapse for this to come true, is to be seen in time.

Apart from the tax imposed on the service offered by the Bank to the Customer, there is no separate amount of tax that will be imposed on the individual card transactions entered into by the customer. The tax for the service is different from the amount of Merchant Discount Rate will only be charged by the bank against the merchant, and it will be passed on to the customer. The rate charged to a merchant by a bank for providing debit and credit card services[i], and this is previously agreed upon between the Bank and the Merchant while availing the service.

It is still not certain as to what amount of savings may eventually accrue from the credit input that may now be availed by the Banks, and only forecasts have been possible. Only those services that attract service charges would be liable to the new tax too, and rates like home/auto/personal loan EMIs will remain the same. On the other hand, one-time processing fees that are subject to service charges would be subjected to the hike. Term health Plans, ULIP (where charges apply), and Single Premium Plans would see a hike of 3 points from 15% to 18%; while Traditional Endowments and Single Premium Annuity Plans will see only a nominal increase.

In short, the new rates come with both a boon and a liability intertwined, in that certain service charge rates will go up, but it may be hoped that the input tax credit available to banks now will help to bring down the costs in time. Bottom liner goes that instead of believing every other exaggerated post on social media, it is better to refer to reliable documents published by the Authorities, to gather knowledge about GST (or any other Govt initiative, law or Rule, for that matter)! As for GST, please go through the CGST Act[ii], IGST Act[iii], the Rules[iv] and Rates[v] as published by the Office.

INDIAN KANOON

[i] Merchant Discount Rate http://www.investopedia.com/terms/m/merchant-discount-rate.asp#ixzz4lrLLFBmg

[ii] The Central Goods and Services Tax Act 2017 (No. 12 of 2017)

[iii] The Integrated Goods and Services Tax Act 2017 (No.13 of 2017)

[iv] GST Rules, 2017

[v] GST Tax Rates, 2017

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