Service tax on Interest on Hypothecation

[Satbir singh wahi]

A  NBFC is financing  Motorcycles , under hypothecation agreement , all income receipts are accounted as Interest income .Whether they are subject to service tax ?  As banks are exempt , so they should be.

[YAGAY and SUN]

Though Banks re exempted to pay the service tax on the Interest portion, but there is no such exemption available to Non Banking Finance Companies.  Please check the Negative list as well as Mega Exemption Notification in this regard before taking any option whether to pay or not the service tax?

AI Summary

Service tax on interest income: NBFCs financing under hypothecation may not enjoy bank exemption and should verify notifications.
Interest receipts of an NBFC from motorcycle finance under a hypothecation agreement are prima facie subject to service tax because the statutory exemption available to banks for the interest portion does not automatically apply to NBFCs; the payer should verify the negative list and applicable exemption notifications to determine taxability.