Service Tax on fore-closure of bank loan accounts – CBE C clarifies
The Service Tax C ommissioner in C hennai has informed the Board that divergent practices are being followed in respect of levy of service tax on services provided by banks and other financial institutions on the amount collected as pre-closure / fore-closure charges in relation to lending.
The Board clarifies that “Any amount collected by the service provider on account of lending is either interest or service charges. Pre-closure / fore-closure charges are not charges collected for delayed payment. These charges not being 'interest' are to be appropriately treated as consideration for the services provided and accordingly leviable to service tax”
And in tune with the recent trend in the Board, this important clarification is couched in a private letter. Why is the Board shy of making the circulars public?
TRU letter No. F No 345/6/2008- TRU , Dated: June 11, 2008