Understanding Goods and Services Tax on Credit Card Transactions and EMIs
The Goods and Services Tax (GST) significantly impacts various credit card services in India, including EMIs, processing fees, and late payment charges. This article outlines the application of the 18% GST rate on such transactions and explains how businesses can claim Input Tax Credit (ITC) on bank-related fees. It also reviews an advance ruling concerning GST applicability on inter-company credit card expense reimbursements, highlighting key compliance considerations.
Since its implementation in 2017, the Goods and Services Tax (GST) regime in India has undergone several adjustments, particularly affecting financial services like credit card transactions. For instance, the GST levied on credit card EMIs has risen to 18%, an increase from the earlier 15% service tax.This article delves into the specifics of GST application on credit card EMIs and interest charges.
Taxation Framework for Financial Transactions, Including Credit Cards
The introduction of GST had a substantial effect on numerous financial activities, credit cards included.
- The GST rate applicable to credit card transactions increased from 15% (under the previous service tax regime) to 18%.
- GST is applied only once per credit card transaction, irrespective of whether the payment is made via cash or card.
- Penalties for late credit card bill payments are now subject to an 18% GST, up from the prior 15% service tax.
- GST does not impact utility bill payments made through credit cards, mirroring their exemption from service tax before GST's introduction.
GST Rates and SAC Codes for Credit Card Transactions and EMIs
The current GST structure for credit cards encompasses various services provided by credit card issuers. This includes interest on credit card EMIs, processing charges, penalties for late payments, annual fees, over-limit charges, and any other associated fees.
The following table details the GST charges for credit card-related services, along with their Service Accounting Code (SAC):
| Description of Services | SAC Code | Rate (%) |
|---|---|---|
| Financial And Related Services | 9971 | 18% |
Furthermore, the 18% GST on credit card EMI payments covers both the interest component of the EMI and any processing fees. Should EMI payments be missed, the same GST rate will be applied to the accrued credit card interest.
Eligibility for Input Tax Credit Claims
Input Tax Credit (ITC) allows businesses to recover taxes paid on purchased goods or services, which can then be offset against their output tax liabilities.
Regarding GST on bank charges, Section 17(5) of the CGST Act does not restrict the availability of ITC. This means that businesses can generally claim ITC for the GST incurred on bank charges without any statutory limitations.
However, to successfully claim ITC under the CGST Act, certain criteria must be fulfilled:
- Possession of a valid tax invoice, debit note, or another document evidencing tax payment.
- Actual receipt of the goods or services for which the ITC is being claimed.
- Confirmation that the tax on these goods or services has been paid to the government, either in cash or through ITC by the bank.
- Timely submission of the required tax return as per Section 39 of the CGST Act.
Advance Rulings Pertaining to GST on Credit Cards
An advance tax ruling offers a definitive interpretation of tax laws by tax authorities, aimed at clarifying specific regulations for businesses and individuals.
One notable advance ruling relevant to GST on credit cards involves the following:
Case Details:
ICU Medical India LLP, a subsidiary of ICU Medical Inc., provided credit cards to its employees for business-related expenditures. The subsidiary then sought reimbursement for these expenses from its holding company.
Legal Question:
The core question was whether GST should be applied to these expense reimbursements.
Official Verdict:
The Tamil Nadu Appellate Authority for Advance Ruling (AAR) determined that GST is indeed applicable to the reimbursement of expenses made to the holding company. The AAR clarified that the payment made by the holding company on behalf of the subsidiary constitutes an advance consideration for services rendered by the subsidiary. Consequently, the holding company's act of providing credit services to its Indian subsidiary falls under the definition of 'Supply' under GST.
Moreover, the AAR concluded that these services are classified as import of services, thereby making the subsidiary responsible for paying 18% GST on the reimbursements.
Frequently Asked Questions
- Is it possible to pay GST using a credit card in India? Yes, GST payments can be made through credit cards, among other accepted payment methods.
- How is GST calculated on merchant transaction fees? Unless explicitly stated otherwise on your tax invoice, all merchant fees and charges are subject to GST.
- Do I need to calculate GST on my credit card EMI? No, a direct calculation is not necessary as all credit card EMIs automatically include an 18% GST.