TAXABILITY OF CREDIT CARD RELATED SERVICES

Service tax has been imposed on credit card, debit cards and other payment cards services by the Finance Act, 2006 with effect from 1st May, 2006 vide Notification No. 15/2006-ST, dated 25-4-2006. The gross amount charged by any person to other person in relation to any credit card related service is chargeable to service tax. Prior to this, credit card services were taxable under banking and other financial services.

Meaning of Credit Card, Debit Card, Charge Card or other Payment Card Services

Section 65(33a) (as inserted by Finance Act, 2006) defines 'credit card, debit card, charge card or other payment' as under -

"credit card, debit card, charge card or other payment card service" includes any service provided,—

(i)    by a banking company, financial institution including non-banking financial company or any other person (hereinafter referred to as the issuing bank), issuing such card to a card-holder;

(ii)    by any person to an issuing bank in relation to such card business, including receipt and processing of application, transfer of embossing data to issuing bank's personalization agency, automated teller machine personal identification number generation, renewal or replacement of card, change of address, enhancement of credit limit, payment updation and statement generation;

(iii)   by any person, including an issuing bank and an acquiring bank, to any other person in relation to settlement of any amount transacted through such card.

        Explanation.— For the purposes of this sub-clause, "acquiring bank" means any banking company, financial institution including non-banking financial company or any other person, who makes the payment to any person who accepts such card;

(iv)   in relation to joint promotional cards or affinity cards or co-branded cards;

(v)   in relation to promotion and marketing of goods and services through such card;

(vi)   by a person, to an issuing bank or the holder of such card, for making use of automated teller machines of such person; and

(vii)  by the owner of trade marks or brand name to the issuing bank under an agreement, for use of the trade mark or brand name and other services in relation to such card, whether or not such owner is a club or association and the issuing bank is a member of such club or association.

Explanation.— For the purposes of this sub-clause, an issuing bank and the owner of trade marksor brand name shall be treated as separate persons.

Credit card, debit card, charge card or other credit card have not been defined but an inclusive definition has been provided to mean such services. As the name suggests, the services in relation to the following will be covered under section 65(33a) —

(a)   credit card,

(b)   debit card,

(c)   charge card,

(d)   other payment card.

It may imply that ATM cards (not ATM cum debit cards) and discount or privilege cards such as inter card, inner-circle cards, jet privilege cards, cards issued by other airlines / hotels / departmental stores  etc. are not covered in the scope of definition. This service will include the services provided -

(i)    by a banking company, financial institution including non-banking financial company or any other person (issuing bank), issuing such card to a card holder;

(ii)   by any person to an issuing bank in relation to such card business, including receipt and processing of application, transfer of embossing data to issuing bank's personalization agency, automated teller machine personal identification number generation, renewal or replacement of card, change of address, enhancement of credit limit, payment updation and statement generation;

(iii)  by any person, including an issuing bank and an acquiring bank, to any other person in relation to settlement of any amount transacted through such card.

(iv)  in relation to joint promotional cards or affinity cards or co-branded cards;

(v)   in relation to promotion and marketing of goods and services through such card;

(vi)  by a person, to an issuing bank or the holder of such card, for making use of automated teller machines of such person; and

(vii) by the owner of trade marks or brand name to the issuing bank under an agreement, for use of the trade mark or brand name and other services in relation to such card, whether or not such owner is a club or association and the issuing bank is a member of such club or association.

Taxable Service

Section 65(105)(zzzw)  of Finance Act, 1994 defines taxable service to mean any service provided or to be provided to any person, by any other person, in relation to credit card, debit card, charge card or other payment card service, in any manner.

Credit card services were earlier covered under banking and other financial services but since a separate category has now been provided, all such card related services would be covered under this clause. Such services would include services in relation to —

(a)   issue of credit card, debit card, charge card or other payment card.

(b)   other services in relation to issue of cards by issuing agency to card holder.

(c)   service provided by any person to issuing bank in relation to cards, i.e., out sourced activities of issuing bank.

(d)   services provided by any person to any other person in relation to settlement of any amount of transaction through card.

Services would cover —

—    receipt of application

—    processing of application

—    providing embossing data to bank agency

—    ATM or IT number generation (PIN number)

—    activation of credit card

—    issuing, preparing and distribution logistics of card

—    all card related services rendered to card holder by call centre or other agency of card issuing bank

—    replacement of card

—    credit limit enhancements

—    payment updation, statement generation and issuance

—    credit card reconciliation etc.

Person Liable

Any person providing credit card related services to other person shall be person liable and be treated as an assessee for service tax purposes.