Availability of ITC on Bank Charges Under GST

Banks offer various other services to their clients besides lending services and charge fees for each one. These service fees include but are not limited to, fees for processing loans, custodian services, RTGS/NEFT payments, and foreign exchange remittance services.

All these bank charges fall under the Goods and Service Tax (GST) scope and thus are eligible for Input Tax Credit (ITC) if used for business. However, since these charges are not explicitly listed on the bank statement, taxpayers neglect to claim ITC.

In this article, we’ll explain input tax credit on bank charges under GST in detail, including the scope, conditions, and time limit.

Applicability of GST on various types of bank charges 

Banks usually apply GST to various service fees, like fees for not maintaining a minimum balance or foreign currency transactions. So, when you pay these fees, you also pay GST on the services.

Here are some more points about the applicability of GST on bank charges:

• Exemptions: Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017, provides GST exemptions for the financial industry. The notice lists the financial services that don't have GST on them. These include services related to credit cards, interest on deposits, services offered by the Reserve Bank of India, and payment and settlement services.
• Place of Supply: A bank or financial institution's place of supply depends on the customer's location. But, if an Indian customer receives services from a foreign bank, the place of supply depends on the bank's location. Any charges collected for those services are not subject to GST in such cases.
• Invoice: Banks are required to provide tax invoices when they charge GST. However, banks can issue statements in lieu or instead of an invoice. Even if this document doesn’t have a serial number or include the recipient’s address, it is still treated as a tax invoice for GST purposes.

Admission of ITC on bank charges 

Under the GST, any expense, except those mentioned under section 17(5) of the CGST Act -  incurred while conducting business and for selling taxable goods or services may be adjusted as input tax credit. 

ITC is the amount companies can subtract from the total tax they owe on purchasing goods and services.

Therefore, you can claim ITC on bank charges because section 17(5) of the CGST Act does not prohibit them.

How to claim ITC on bank charges?

The concern of how to claim ITC without a tax invoice is reasonable since banks do not provide tax invoices. They only list bank fees on bank statements.

However, the bank statements you receive are considered legitimate documents to claim ITC for GST on bank charges. 

Additionally, you must inform your bank of your GST registration numbers for the ITC to be accurately reported in your GSTR-2B/2A.

Conditions to claim ITC on bank charges

There are four conditions you need to satisfy when claiming an ITC on bank charges; you must: 

• Have a tax bill/debit bill or other document
• Receive the goods or services
• Pay GST to the government in cash or ITC
• Submit a GST return under Section 39 of the CGST Act

Time limit to claim ITC on bank charges

The deadline to claim the ITC on bank charges for a financial year is earlier than the following two dates:

• The date of submission of the annual return.
• The November 30 of the year following the relevant financial year.