No Service Tax on Bank Deposit Insurance Premium
By its circular Ref. No. DICGC/DID/746/05.03.01/2008-09 Dated: January 12, 2009, the Deposit Insurance And Credit Guarantee Corporation informed the bankers
At present, all the registered insured banks are liable to pay to the Corporation deposit insurance premium at the rate of 10 paise per annum for every deposit of Rs.100 (i.e 0.10 % p.a) at half yearly intervals. Recently, the Commissionerate of Central Excise and Service Tax, LTU, Mumbai have communicated that the deposit insurance activity is liable to Service Tax with effect from May 1, 2006. The matter is under reference to appropriate authorities and a final view in the matter is expected to be taken soon.
2. This is for the advance information of the insured banks that in case Service Tax is made applicable on the deposit insurance premium, all the banks may have to pay service tax, at a short notice, over and above the premium being paid as per the relevant rate.
3. However, this circular should not be construed as an advice to pay service tax on premium.
Apparently the matter was taken up with the Board and the Corporation now informs the banks in its Circular Ref. No. DICGC/DID/8926/05.03.01/2008-09 Dated: March 20, 2009.
Please refer to our circular letter No.DICGC/DID/746/05.03.01/2008-09 dated January 12, 2009 on the captioned subject regarding the communication from the Commissionerate of Central Excise and Service Tax, LTU, Mumbai covering the activities carried out by the Corporation under the head “General Insurance Business (Misc. Insurance)”, rendering it liable to Service Tax with effect from May 1, 2006.
2. The matter was referred to the Ministry of Finance, Government of India who have since clarified vide their letter dated February 24, 2009 that the charges collected by DICGC are not taxable under the taxable service of “General Insurance Service.
One thousand Crores of rupees in Service tax just blown up by one clarification. The point is why can't the officers seek clarifications from their Board before rushing into demand tax? Just imagine the amount of paper that must have been wasted in communicating this to all the banks! A small forest must have been eaten up.