Kochi native G Anoop had given his car for servicing at a dealership. The total charge for the service was Rs 3,500. But when he asked the firm whether they accept card payments, they said yes, however, a service tax of 15 per cent will be levied for the entire amount.

The government last week announced that service tax on card transactions up to Rs 2,000 would be exempted. But there is no clarity on whether the tax will be levied on the amount after Rs 2,000 or for the full amount, if it exceeds the Rs 2,000 limit. In the case of Anoop, the latter was the case and he eventually ended up paying service tax for Rs 3,500.

Confirming the confusion, the State Forum of Bankers’ Clubs’ Kerala general secretary K U Balakrishnan said that the finance ministry has to issue a clarification on the latest development. “Now people are charging service tax on transactions above Rs 2,000 for the entire amount. Banks have not received any circular whether the service tax charged only on amount above Rs 2,000,” he says.

The service tax burden on card transactions is set to remain even after the rolling out of GST, say experts, despite the government’s recent push towards incentivising digital payments. Now, companies with an annual turnover of above Rs 10 lakh have to levy service tax on transactions they conduct and under GST, the turnover limit is likely to be doubled. Besides, companies also charge service tax on service charges which have to be paid by the consumer, eventually.

“After the government directive last week, companies now charge service tax above transactions of Rs 2,000. If the total amount is Rs 2,001 or Rs 10,000 service tax has to be levied for the whole amount. Ideally it should have been for the amount above Rs 2,000. If the total amount is Rs 3,500, service tax has to be charged only on Rs 1,500. Going forward the service tax quotient from card transactions should also be removed,” said Sanjeev Kumar G, founder of prognoadvisor.com, a Financial Planning firm, adding that the government should clarify the issue immediately.

The recent government notification, on exemption of service tax, seeks to amend a 2012 notification that delineated the services exempt from tax.

These include services provided by arbitral tribunals, the testing of newly developed drugs, educational institutions, trade unions, general insurance businesses sports bodies, and services provided by international bodies such as the United Nations.