Understanding Average Monthly Balance (AMB) Charges and Their GST Implications

Financial institutions often mandate that customers keep a specific average balance in their accounts throughout a month. This requirement is known as the average monthly balance. Should an account holder fail to maintain this stipulated balance, the bank imposes AMB charges, which include Goods and Services Tax (GST). Familiarity with these provisions can assist in avoiding such fees. This article provides a comprehensive overview of AMB charges and their taxation under the GST framework.

What Constitutes AMB Charges and Who is Involved?

Average Monthly Balance (AMB) refers to the mean balance a bank expects a customer to hold in their savings or current account over a defined period, usually a month or a quarter.

Banks levy AMB charges when account holders do not meet the specified average monthly balance. These charges can vary significantly depending on the bank, the type of account, and the minimum balance requirement.

For instance, if a savings account mandates a minimum average balance of INR 10,000, and a customer’s actual average balance for the month is INR 8,000, the deficit is INR 2,000. If the bank applies an AMB charge of 1% on this shortfall, the customer would incur a fee of INR 20.

AMB transactions primarily involve two parties: the account holder and the banking institution. The bank establishes the minimum average balance criteria for each account type, and the responsibility for adhering to this balance rests with the account holder.

Customers are subject to tax on these fees imposed by banks. These charges can be easily circumvented by consistently monitoring account activity and performing necessary deposits and withdrawals to ensure the average balance is maintained.

GST Taxation on AMB Charges

According to the Central Goods and Services Tax (CGST) law, AMB charges are categorized as a supply of services from the bank to its customers, thereby attracting GST. All banking services in India are subject to an 18% GST rate. This implies that the total amount deducted by the bank for not maintaining the average monthly balance comprises both the AMB charges and the applicable GST.

Input Tax Credit (ITC) Eligibility for GST Paid on AMB Charges

The eligibility to claim Input Tax Credit (ITC) on GST paid for Average Monthly Balance (AMB) charges in India depends on the nature of the transaction and whether the recipient is registered under GST.

For Individual Account Holders:

Under GST regulations, individuals are generally not permitted to claim Input Tax Credit on GST paid for AMB charges. This is because AMB charges are considered banking service fees and are not eligible for ITC claims by individual consumers.

For Businesses and Corporations:

A business registered under GST can claim Input Tax Credit on GST paid for AMB charges, provided the bank account is utilized for business-related operations. Since these charges are recognized as a legitimate business expense, they qualify for Input Tax Credit under GST. However, if the bank account serves personal purposes, the GST paid on AMB charges cannot be claimed as ITC.

Furthermore, ITC on GST paid for AMB charges can only be claimed if the bank issues a tax invoice or an equivalent document that clearly specifies the GST amount levied on these charges.