The Modi-led government has taken yet another step to improve the economic viability of banking operations in rural India, giving a further impetus to financial inclusion in the country.

The Finance Ministry announced service tax exemption on services rendered by business correspondents or business facilitators to banking companies for its rural branch accounts.

Earlier, the service tax exemption was restricted to accounts covered under the Pradhan Mantri Jan Dhan Yojana (PMJDY) and specified services, such as account opening and cash deposits.

India has about 1.3 lakh business correspondents, largely focussed on expanding banking services in rural areas

Game changer

This move by the revenue department will give a fillip to rural banking and enable financial inclusion, as the cost of delivering banking services in rural areas is expected to come down, R Muralidharan, Senior Director (Indirect Taxation), Deloitte India, told BusinessLine .

Rajat Mohan, Director, Nangia & Co, a firm of chartered accountants, said this will further bring rural India into the main banking system, and eventually push India towards digital payments.

“I believe, going forward, bank account operations in rural India would be more economical and viable,” Mohan said.

Till recently, it was the banks that were bearing the service tax burden, except in the case of basic savings bank deposit accounts (BSBDA) covered under the PMJDY.

The government had already given full service tax exemption for services rendered by business facilitators or business correspondents to banking companies with respect to the BSBDA covered by the PMJDY in the banking company's rural area branches, by way of account opening, cash deposits, cash withdrawals, obtaining e-life certificate, and Aadhar seeding.