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Sunday, Sep 26, 2004

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No service tax on interest on overdraft, cash credit facility

K.R. Srivats

New Delhi , Sept. 25

THE Finance Ministry has now held that interest on overdraft facility or cash credit facility offered to a customer by a banking company or a financial institution or any commercial concern would not be subjected to service tax.

This exemption from service tax would be available so long as the interest portion is shown separately in an invoice, bill, challan or any other document issued for the purpose, a Revenue Department official said.

Further, the revenue department has also said that banks or financial institutions including NBFCs or any other commercial concern need not fork out any service tax on the income earned from the discounting of bills of exchange or cheques.

In the latest Budget for 2004-05, the scope of financial services under the service tax net had been extended to include other specified financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit, bill of exchange, providing a bank guarantee, overdraft facility, bill discounting, safe deposit, lockers or safe vaults and operation of bank accounts.

Meanwhile, the Finance Ministry has now held that service providers of banking and other financial services need not conform to certain existing stipulations.

The Revenue Department has said that the bill, invoice or challan that needs to be issued by a service provider of banking and financial services could include any other document by whatever name called.

Further, it is not mandatory that the invoice, bill or challan should be serially numbered or contain the address of the person receiving taxable services.

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