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Service tax on interest charged on credit card

Armaan Anwar (Article Assistant) (47 Points)

07 September 2014

Can anyone explain why interest payment on credit card is taxable ? Cant it be considered as inclusion to negative list 'specified financial service' and thereby not taxable ? Can anyone explain this concept in detail ?

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5 Replies

Sumit Grover (Chartered Accountant ) (3652 Points)
Replied 07 September 2014

Interest on delayed payment of installment of credit card is excluded from taxable value by virtue of rule 6(2)(iv) of Service tax(determination of value) rules, 2006

N/N 24/2012-ST can also be referred for the same.

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Armaan Anwar (Article Assistant) (47 Points)
Replied 07 September 2014

Thanks sir for ur valuable comments :) but have seen banks levy service tax on interest charged for credit card payments. I even came across a CBEC education guide which states that Interest on Credit Card Payments is subject to service tax. Do u have any idea on this ?

(Guest)

Even i think it should not be taxable..it is similar to the case where banks give loans and charge interest...dan why it should be taxable..

Armaan Anwar (Article Assistant) (47 Points)
Replied 08 September 2014

Sir, here is the exact text of CBEC Education Guide 'Interest for delayed payment of any consideration for the sale of goods or provision of service has been specifically excluded from value by rule 6 of valuation rules. Thus ordinarily any interest charged for delayed payment of consideration would have been outside the ambit of service tax. However, in the case of credit cards the credit extended is not for the delayed payment of consideration for the provision of services. The services in the credit card are by way of levy of issuing charges or the commission charged from merchants etc. The interest in this case is not for the consideration for the use of the card. Thus the benefit under the valuation rules will not be available to credit card companies'. Can anyone plz guide on the basis of this Education Guide ?

Joswin Punchakunnel (Chartered Accountant) (314 Points)
Replied 24 October 2014

Dear armaan the charge for delayed payment has no relation with the prevailing interest for the same credit card. The charge levied are consideration for the additional time provided. Hence the same shall be taxable. However there shall be no tax for the interest on credit card.