No Service Tax when payment is by card and single transaction value is below INR 2,000/-

[Monarch Bhatt]

Notification Number 52/2016 – Service Tax dated 8^th December, 2016 has been issued to add new entry number 64 to the mega exemption notification number 25/2012-Service Tax. The notification is coming into effect from 08^th December, 2016.

The new entry 64 reads as follows:-

“64. Services by an acquiring bank, to any person in relation to settlement of an amount up to two thousand rupees in a single transaction transacted through credit card, debit card, charge card or other payment card service.

Explanation. - For the purposes of this entry, “acquiring bank” means any banking company, financial institution including non-banking financial company or any other person, who makes the payment to any person who accepts such card.”

The notification has been issued to grant an exemption from the payment of service tax wherein, single transaction below ₹ 2,000/- has been transacted through Credit Card or Debit Card or Charge Card or other card payment services.  To grant the benefit of exemption notification under entry 64, Banking company or Financial Institution or Non-Banking Company or any other person shall take into consideration the following condition and shall satisfy following conditions:-

1. The customer is making payment through Credit card or Debit card or Charge card or other card payment services.

AND

2. Payment made by the customer is below ₹ 2,000/-. 

In such cases, generally whenever any customer makes payment by using Credit Card or Debit Card or Charge Card or through any other card, Banking company or Financial Institution or Non-Banking company or any other person providing services to the service receiver who is swiping the card and collecting the money from customer charges certain fixed percentage, which is generally in the range of 1% to 3.5% as a service charge. On such service charge such service providers i.e. Banking Company or Financial Institution or Non-Banking companies are charging service tax.  Now onwards, as per the notification where single transaction is for amounting INR 2000/- or less and payment has been made by card will not be chargeable to service tax. 

Example: - Mr. A is using the Credit card of ICICI Bank and to purchase grocery amounting of INR 1800/-, Mr. A is making payment through Credit card to M/s. T Mart. T Mart is swiping card of Mr. A for an amount of ₹ 1,800/- on the swipe machine of ICICI Bank. In such cases, ICICI Bank is charging 2% (INR 36/- of INR 1800/-) as a service charge to T Mart and charges service tax @ 15% (14%+0.5%+0.5%) i.e. INR 5.4 (15% of INR 36/-). As per the notification, now on such type of transaction ICICI bank will not charge service tax to T mart, as it is a single transaction below INR 2,000/- and payment has been made by Credit card.     

It is to be noted that as per the notification, the customer who is making payment through Credit Card or Debit Card or Charge Card or by other card payment services, have to pay appropriate service tax while receiving any of the taxable service. The notification, does not mean that it excludes the service tax on all types of services wherever, payment has been made through Credit Card or Debit Card or Charge Card or other card payment services where payment is below ₹ 2,000/-.

Discussions to this article

[VAMSI KRISHNA]

Dear Sir,

In your example, ICICI bank will pay to T mart Rs. 1758.6 (1800-36-5.4). After 08-12-2016 on wards bank will pay 1764 (1800-36). Is my contension is right ?????

I have a doubt that how much amount will be deduct in Mr. A bank account ????????????? Is any effect of ammendement on that amount to be deducted by bank from account of Mr. A ???????

[Monarch Bhatt]

Yes, your understanding is right. In the given example, after 08-12-2016, bank will pay INR 1764/- (1800-36).

[Monarch Bhatt]

No, in the given example, even after 08-12-2016, there is no change in the payment to be made by Mr. A. It will remain same as INR 1800/-. Unless T Mart and such stores does not reduce the price of goods or services, consumer will not be benefited by this amendment.

[Hitendra Bhandari]

Monarch Sir,

Whether this amendment of exemption up to ₹ 2000/- would apply when payment gateway charges the processing fee. Further, whether it will apply when payment is made through e-wallets such as paytm, Itzcash etc. Kindly advise.