Credit Card Dues are personal loans - RBI
EVEN if the CBEC does not change its clarification or the Ministry does not exempt the service, there is no way service tax can be levied on interest and the RBI has clarified that credit card dues are personal loans on which interest is charged.
RBI's Master Circular DBR.No.FSD.BC.18/24.01.009/2015-16, dated 01.07.2015 clarified the position as:
5. Interest rates and other charges:
5.1 Banks are advised to be guided by the instructions on interest rate on advances issued by RBI and as amended from time to time, while determining the interest rate on credit card dues, the latter being in the nature of non-priority sector personal loans. Banks should also prescribe a ceiling rate of interest, including processing and other charges, in respect of credit cards. In case banks/NBFCs charge interest rates which vary based on the payment/default history of the cardholder, there should be transparency in levying of such differential interest rates. In other words, the fact that higher interest rates are being charged to the cardholder on account of his payment/default history should be made known to the cardholder. For this purpose, the banks should publicise through their website and other means, the interest rates charged to various categories of customers. Banks/NBFCs should upfront indicate to the credit card holder, the methodology of calculation of finance charges with illustrative examples, particularly in situations where a part of the amount outstanding is only paid by the customer.
The manner in which the outstanding unpaid amount will be included for calculation of interest should also be specifically shown with prominence in all monthly statements. Even where the minimum amount indicated to keep the card valid has been paid, it should be indicated in bold letters that the interest will be charged on the amount due after the due date of payment. These aspects may be shown in the Welcome Kit in addition to being shown in the monthly statement. A legend/notice to the effect that "Making only the minimum payment every month would result in the repayment stretching over years with consequent interest payment on your outstanding balance" should be prominently displayed in all the monthly statements so as to caution the customers about the pitfalls in paying only the minimum amount due.
Certainly, the Reserve Bank of India should be considered a better repository of knowledge about credit card and interest on dues than the CBEC.