The taxman arrived at the demand by assuming the charge imposed on those who don’t maintain the minimum balance as the value of the services provided by the bank to account-holders.
The Indian taxman brings to mind these lines from The Beatles song “Taxman”: “If you drive a car, I’ll tax the street/If you try to sit, I’ll tax your seat. If you get too cold, I’ll tax the heat/If you take a walk, I’ll tax your feet”. In the past, the taxman has made many outrageous tax demands—its records in defending demands at the various levels of appeal show how little thought goes into such demands. One would have thought the Centre’s measures against irrational demands would have sobered the taxman down, but The Economic Times (ET) reports that the Directorate General of Goods and Services Tax Intelligence has sent notices to many banks to pay taxes on free or bundled services provided to account-holders abiding by the minimum balance norms of respective banks. The total demand, as per the ET report, could exceed Rs 6,000 crore.
The taxman arrived at the demand by assuming the charge imposed on those who don’t maintain the minimum balance as the value of the services provided by the bank to account-holders; since bank customers maintaining the minimum balance are not charged this amount, the argument that these services are given to them for free is likely to be advanced to justify the demand.
The taxman, it would seem, is ignoring the fact that the imposition on users not holding minimum accounts is not in the nature of a cost charged for services (though a State Bank of India does call it a service charge in the case of its current accounts). It is more in the nature of a deterrent against maintaining zero balance. The banks are likely to challenge the demand. If it is upheld, then it will be the customers who will suffer the most since banks will be forced to pass on the charges to them; adding insult to injury, the demand is a retrospective one, calculated for over the last five years.
Whatever the outcome, the taxman’s demand is ham-fisted and the government should keep in mind that such demands perpetuate tax terror, an issue it had promised to tackle.