gst treatment savings deposit

[Madhavan iyengar]

A NBFC receives deposits like savings bank from customers and pays interest on the said deposit placed minimum deposit is ₹ 500 /- however the customer is required to maintain the balance of ₹ 500 /- if the balance falls short of ₹ 500/- then the NBFC will write back the amount below ₹ 500/- after 2 years and it will be treated as income and then transferred to reserve account

query whether this income ie deposit not paid back to customer which will be written back by NBFC will it be liable for gst

[KASTURI SETHI]

If the amount is forfeited, it is a supply of service and taxable. It is a sort of penalty. It is covered under serial no.5 (e) of Schedule-II.

[Madhavan iyengar]

Kasturi Sir

thanks but a few points for my understanding

In this case if the principal supply ie deposit is exempt from gst then how the same is taxed when it is written back. Is there any service element in the write back.

[rajkumar shukla]

Respected kasturiji.

Can you pl be specific and point out the exact service of 5(e) of schedule!!.ie whether it is agreeing to the obligation to refrain from an act,or to tolerate an act or situation or to do an Act.

[KASTURI SETHI]

Dear Madhavan Iyengar Ji,

"deposit not paid back to customer which will be written back by NBFC"

Pl. elaborate the phrase, "written back". Whether the phrase "written back' shas been used for "reserve account " maintained by NBFC ? If any person does not maintain sufficient balance, some amount is deducted as penalty from his account. Are you talking of the amount deducted as penalty or the remaining balance amount after deduction of penalty ? Pl. clarify.

"deposit not paid back to customer which will be written back by NBFC"

[Madhavan iyengar]

Kasturi sir

The NBFC has some internal regulations by which if any customer balance is not maintained below a particular amount then NBFC will write back the amount as income

Accounting entry passed when deposit is placed Debit Bank A/c Credit Deposit account

Now if deposit is not required to be paid back to customer as a result of non maintenance of minimum balance then NBFC will pass following entry -

Debit Deposit Account Credit Income account this is called as write back

[DR.MARIAPPAN GOVINDARAJAN]

In my view no. At the same time the views of Shri Sethi could not be ignored. However the GST council has to issue clarification in this regard.

[Ganeshan Kalyani]

Tolerating an act of the customer of not keeping minimum balance as per agreed terms. It is a supply.

[KASTURI SETHI]

Sh.Shukla Sir, You have more knowledge than I have. I am dead sure you have grasped what I wanted to say. So I did not find it necessary to mention specifically. I have a great respect for your knowledge, experience and art of drafting. Thanks and regards.

[rajkumar shukla]

@kasturi ji..in fact I wanted to discuss this issue in detail ,that is why I asked u to be specific.In fact I feel that tolerating an act should be like NBFC could hv prosecuted the customer in absence of minimum balance or could hv taken any other action but since the company got the money ,it did not prefer to do so.so tolerating an act should hv two limbs..one that normally should / could hv been done but not done for payment of fine or penalty.Here company does not have any other option but to deduct penalty...Will this too fit into that definition? It should be like this situation..If accidently I damage your vehicle,u can lodge a FIR but if I pay you some thing in lieu of that ,you dont..you just tolerate my this act.

Just my personal view..not necessarily correct.Would like to hv other views.

[rajkumar shukla]

@kasturi ji..in fact I wanted to discuss this issue in detail ,that is why I asked u to be specific.In fact I feel that tolerating an act should be like NBFC could hv prosecuted the customer in absence of minimum balance or could hv taken any other action but since the company got the money ,it did not prefer to do so.so tolerating an act should hv two limbs..one that normally should / could hv been done but not done for payment of fine or penalty.Here company does not have any other option but to deduct penalty...Will this too fit into that definition? It should be like this situation..If accidently I damage your vehicle,u can lodge a FIR but if I pay you some thing in lieu of that ,you don't..you just tolerate my this act.

Just my personal view..not necessarily correct.Would like to hv other views.

[Alkesh Jani]

Respected Experts,

Can we apply Circular No.102/2019 dated 28 June 2019 in the instant case?

Thanks for your views

[Mahir S]

Most of the Banks do charge Penalty for non Maintenance of Minimum bank account balance. The bank charges for such penalty are fixed plus GST to be paid on such penalty amount. Banks may also charge penalty inclusive of GST amount. Therefore, in the present case too, instead of charging the same is deducted but the process remains the same as much as that penalty has been charged for not maintaining minimum balance.

So in my view, it is liable for GST payment.

AI Summary

Tolerating an act: write back of NBFC customer deposits treated as a taxable supply under GST by some practitioners. Whether amounts retained by an NBFC for failure to maintain minimum balance and later 'written back' as income are taxable under GST: one view treats such retention as a forfeiture or penalty constituting a taxable supply of service (analogous to bank non maintenance charges), while others question whether a service element exists when the underlying deposit transaction may be exempt and call for formal clarification.