Service Tax on pre-closure under banking and other financial Services - regarding - Service Tax - F No 345/6/2008-TRU

Service Tax on pre-closure under banking and other financial Services - regarding F No 345/6/2008-TRU Government of India Ministry of Finance Department of Revenue (Tax Research Unit) Dated: June 11, 2008 Subject: Service Tax on pre-closure under banking and other financial Services - regarding Commissioner (Service Tax), Chennai has brought to the notice of 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. 2. Services provided by a banking company or a financial institution or any other body corporate or any commercial concern in relation to banking or other financial services is leviable to service tax under Section 65(105)(zm) of Finance Act, 1994. 'Banking and other financial services' defined under Section 65(12) include lending. 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 under Section 65(105)(zm). 3. Field formation may be advised to take appropriate action. This is issued with the approval of Member (Budget). Unmesh Wagh Under Secretary (TRU)