Interest on loans – taxable service?

By Vijay Kumar

DDT's story on the subject yesterday on the above subject sparked a response from a practicing Consultant, K. Mani , who wrote in,

I have gone through the articles and problems faced by one Netizen in respect of service tax on Interest on loans charged by ICICI Bank.

I also faced the same problem and I took up the matter with ICICI Bank through correspondence, mail and phone. They had been repeating that according to Finance Act, 1994, service tax is liable to be charged on all.

Immediately I brought to their notice about the availability of exemption under Valuation Rules of Service Tax and endorsed a copy of the same and I also sent Advocate notice to them that if they continue to charge interest on loans then I will not pay the interest which is recovered without authority of law. Queries were raised by their Hyderabad Office and Gurgaon Office and I replied. I finally informed that I will not pay interest.

I fully concur with the netizen and Interest on loans (whatever type) is not payable.