Exemption from liability of Service tax on commission received against doing government business by the commercial bank

[Sudhir Kumar]

Whether the commission received by the commercial banks from RBI in lieu of government business transaction is taxable or it is exempted under notification no. 22/200-ST. Please give opinion.

[YAGAY andSUN]

Here’s a clear and simple explanation in lucid language:

Commercial banks receive commission from the Reserve Bank of India (RBI) for handling various government business transactions—like collecting taxes, distributing pensions, etc. The question is whether this commission is taxable under GST or exempt.

Now, let’s look at the legal part:

There is an old service tax exemption—Notification No. 22/2006-ST, dated 31.05.2006—which exempted services provided by banks to RBI, including commission for government business. However, that notification was under the Service Tax law, which is no longer in effect since GST came into force on 1st July 2017.

Under the current GST law, there is no specific exemption that says the commission received by banks from RBI for doing government business is exempt.

Conclusion / Opinion:

• Yes, the commission received by banks from RBI is taxable under GST.

• There is no exemption notification under GST that covers this kind of income.

• Banks need to charge and pay GST on this commission just like they do for other taxable services.

So in short: this commission is taxable, and the old service tax exemption (Notification 22/2006-ST) does not apply under GST.

*** 

[KASTURI SETHI]

Notification No. 22/2006-S.T., dated 31-5-2006 was rescinded vide Notification No.34/12=ST dated 20.06.12 (effective from 1.7.2012).

Also go through the following case law :-

2023 (5) TMI 137 - SC ORDER - C.S.T., BANGALORE Versus CANARA BANK

[KASTURI SETHI]

2016 (10) TMI 800 - CESTAT NEW DELHI-LB - COMMISSIONER OF C. EX. & S.T., CHANDIGARH-II Versus STATE BANK OF PATIALA

 

[Ganeshan Kalyani]

I agree with the views of Sri Kasturi Sir.

Sec. 142(8)(a) where in pursuance of an assessment or adjudication proceedings instituted, whether before, on or after the appointed day, under the existing law, any amount of tax, interest, fine or penalty becomes recoverable from the person, the same shall, unless recovered under the existing law, be recovered as an arrear of tax under this Act and the amount so recovered shall not be admissible as input tax credit under this Act;

AI Summary

Taxability of bank commission: commissions from central bank for government business are taxable under GST and not exempt. Notification No. 22/2006 ST formerly exempted bank services to the central bank, including commission for government business, but that service tax exemption was rescinded and does not carry over into GST. There is no equivalent GST exemption for commissions received by banks from the central bank for government business; therefore such commission is treated as taxable under GST, and banks must charge and remit GST. Transitional recovery provisions may render earlier recoverable amounts as arrears under GST and ineligible as input tax credit.