Service tax on credit card, finance charge.

[CASeetharaman KC]

I find that service tax is being charged on interest on credit card payments by banks. In my opinion there is no element of service involved in Finance charges or interest charged on credit card payments. If there were to be correct then banks should be charging service tax on interest charged on loans. There seems to be a serious problem somewhere and it seems these organisations are playing it safe by charging service tax on interest and finance charges, whereas the customer ends up payings these charges without questioning it. I have my own case where I wrote to HDFC Bank who had charges service tax on interest charged on delayed payments. They claim that service tax is being charged as per Government of India Guidelines. I am truly not aware of any such guidelines where the Government has mentioned anything about collecting service tax on interest charged. Please guide me appropriately if I am wrong

AI Summary

Service tax on credit card finance charges: interest excluded from taxable value but fees and service charges may remain taxable.
Credit card and banking services may be taxable, but rules exclude plain interest charged on loans from the taxable value; therefore interest or finance charges that constitute lending costs should not be included in service tax valuation, whereas administrative fees, commissions and other service charges for providing card services remain taxable.