Banks up in arms against service tax on govt business
December, 02nd 2008
Banks are in a quandary over the imposition of service tax by the Central Board of Direct Taxes (CBDT) on income out of agency commission on various services being provided by them on behalf of the government. These services include accepting advance payment of tax, pension disbursement and various government payments which generate income for the banks. In turn, the banks want an increase in the agency commission to compensate the service tax burden in case the government was unable to waive such a tax.
For example, banks get Rs 60 per transaction of pension disbursement in the form of agency commission. Similarly, they get 9 paise per Rs 100 transactions of advance tax payments. Earlier, they were not paying any taxes against these income accrued from services which are being provided by them on behalf of the Reserve Bank of India (RBI) as the central bank is the nodal agency for such collections and disbursements.
However, the CBDT has decided to imposed service tax of 12% on the agency commission. The Indian Banks Association (IBA) will take up the issue for the enhancement of agency commission to the RBI. Decision to this effect was taken during the monthly managing committee meet of the IBA which was held in Mumbai on Monday. Requesting anonymity, a public sector bank chief told FE, We want our agency commission to be increased to such an extent that we remain unaffected by the imposition of the tax. Some of the other issues that came up for discussion during the meeting of the managing committee include update on National Payment Corporation of India Limited , consortium of banks for lending of amount more than Rs 100 crore and second option of pension for the bank employees.
A sub-committee will be formed by the IBA to finalise the banks action plan on these issues. The IBA source told FE that while the wage revision issue was likely to be discussed again with the United forum of Bank Unions early next month. A report on fresh calculation of pension liability has already been submitted by the actuaries panel comprising of D Basu of Kolkata and KP Sharma of Chennai. The panel has suggested that the pension option would put Rs 6,000 crore of burden on the banks.