Service tax on interest charged

[Guest]

My credit card issuer charging service tax on interest charged on loan taken, which shall be repaid in 6 EMI.

My question is that whether service tax is applicable on interest charged by credit card issuer or not?

Thanks in advance.

Sanjay Gupta

[Rajagopalan Ranganathan]

Sir,

If the credit card company realises only interest , then such interest is not liable to service tax, as the transaction assumes the nature of loan. However, if penal amounts are recoverable for delayed payment of such loan such penal amount is chargeable to service tax since they are charges for tolerating an act or situation which is a declared service under Section 66 E of Finance Act, 1994.

[Ganeshan Kalyani]

In my view interest paid you is an income to the Credit card issuer for providing service of financial assistance. The interest is a consideration liable to service tax.

[Ganeshan Kalyani]

Dear Rajagopalan sir, thanks for clarification.

[Guest]

My credit card issuer clarify as under "

We would like to clarify that any EMI which is billed on the card is a pure service in relation to credit card services, where post grant of EMI, the credit limit of the customer reduces. Section 65(33a) of Chapter V of the Finance Act, 1994 defines credit card service as under:

"Credit card, debit card, charge card or other payment card services includes any service provided by a banking company, financial institution including non banking financial company or any other person issuing such card to a card holder."

Since the above service is in relation to credit card service to the card holder, the same fall under the above charging section and is liable for service tax.Having explained this we wish to clarify that service tax will be applicable towards the interest component of EMI.

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Pl. confirm whether above clarification is correct of not?

Sanjay Gupta

[DR.MARIAPPAN GOVINDARAJAN]

It is only the interest on loan but not any fees on the services rendered by the bank. Further it does not amount to penal in nature. As such the views of Shri Rajagopalan is correct.

AI Summary

Service tax on interest may be contested as loan interest or treated as taxable credit card service consideration. The document presents two operative positions: interest on credit card EMIs may be treated as interest on a loan and thus not liable to service tax, while an alternative position (and the issuer's representation) treats EMI interest as part of the credit card service consideration and therefore taxable; penal or late payment charges are regarded as taxable as consideration for tolerating an act or situation.