Interest on loans – taxable service?
We received a mail yesterday from a Netizen with a query,
I am holding an ICICI Bank credit card which offered me a personal loan of Rs. 40,000/- . The loan is being repaid by me in 36 EMI which includes principal & interest. It is noticed that they are charging service tax @ 12.36% on the loan interest amount. But as per my opinion “interest on loan” is not taxable under Service tax rule. In support of my opinion I would like to bring your attention to the following Service tax Rules / Notification / Circular:
(a) Notification No.15/2006 dated 25.04.2006:
CREDIT CARD , DEBIT CARD , CHARGE CARD OR OTHER PAYMENT CARDS RELATED SERVICE
“taxable service” means any service provided or to be provided to to any person, by any other person, in relation to credit card, debit card, charge card or other payment card service, in any manner; (section 65(105)(zzzw) of the Finance Act, 1994) Value of Taxable Service: The value of taxable service shall be the gross amount charged by the service provider for providing such service and the money value of any other consideration ( if any) received for providing such service. The value of taxable service shall be determined as per the provisions made under section 67 of the Finance Act, read with Service Tax (Determination of Value) Rules, 2006
(b) Clause 6(2) (iv) of the Service tax (Determination of Value) Rules 2006 :
Subject to the provisions contained in sub-rule (1), the value of any taxable service, as the case may be, does not include–
(i)….
(ii)…..
(iii)…...
(iv) interest on loans.
(c) The para 19.2 of Circular No. 80/2004-Service Tax dated17-9-04
The "interest on loans" has been specifically excluded by way of amendment to the provisions relating to valuation. All such interests that are in the nature of interests on loans would thus remain excluded from taxable value.
The ICICI Bank is not accepting my plea. Therefore, I request for your help in this issue. It will be appreciated if you kindly give your opinion whether interest on personal loan sanctioned by banking institution to their credit card customer is taxable under Service tax rule or not.
Here is an ordinary citizen, who has understood the law so well. Yes Sir, you are absolutely right – no Service Tax is payable on interest on loans and you can claim a refund from the Department. But maybe the Board should clarify this situation so that poor tax payers are not burdened with tax they are not liable to pay.