Banking services offered to units set up in special economic zones have been exempted from paying service tax.
The clarification has been issued by the Central Board of Excise and Customs (CBEC) in response to a query from the Indian Banks Association (IBA).
According to banking sources, this had come as a relief to banks as well as promoters planning SEZs. While there had been a rush for banks to set up branches in SEZs as offshore banking units (OBUs) earlier, the business is restricted to certain sectors like export of commodities which are ruled by a global economic cycle. With a downturn in commodity prices, the business of offshore banking units had become highly restrictive, a banker said.
This has been one of the reasons for the RBI to curb the number of licenses allotted to banks for setting up OBUs in special economic zones.
Service tax on banking services has been raised from 10 to 12 per cent. It includes mainly the transfer of money through various modes such as electronic fund transfer and rendering of banking services to issuer of capital market instruments.