ITC on bank charges and its accounting treatment

Usually, banks provide various services to their customers other than lending services on which they recover charges against those services. Some of the examples of such service charges are:

• ATM card charges
• Cash Handling charges
• Loan/ working capital limit processing charges
• AMB non-maintenance charges
• Cheque return charges
• Locker charges
• Custodian charges
• Underwriting service charges
• RTGS/NEFT charges
• BG/LC charges
• Foreign exchange remittance services charge etc.

All such service charges are covered under the ambit of GST and thus liable for GST. However, the customers usually forget to take input tax credit of the GST so charged by bank as these charges are not separately mentioned in the bank statement. This might also be due to lack of awareness amongst the customers. In this article, we are therefore answering all the questions regarding eligibility of input tax credit of bank charges.

Whether ITC is available for bank charges

Yes, ITC for GST on bank charges is available in terms of CGST Act subject to fulfilment of conditions prescribed therein. Accordingly, if you are a registered taxpayer (regular) under GST, you can take ITC for GST levied on bank charges. It is to be noted that ITC for GST on bank charges is not blocked by the provisions of section 17(5) of the CGST Act.

What are the conditions for taking ITC

Following conditions are to be fulfilled for taking input tax credit in accordance with section 16 of CGST Act:

• You must possess tax invoice/ debit note or any other tax paying document
• Goods or services are actually received by you
• The tax has been paid to the Government either by cash or ITC by the bank on such bank charges
• Furnishing of return under section 39 of the CGST Act

How can we take ITC for GST on bank charges as bank does not issue a tax invoice for such charges

• Since, banks do not issue a tax invoice and bank charges are mentioned in the bank statement only, a valid question arises as to how can we take ITC in absence of tax invoice.
• You need not worry on this issue as the bank statement received by the taxpayer is accepted as a valid document to claim ITC for GST on bank charges. This has also been clarified by CBIC.
• If the bank statement shows bifurcation of GST separately from bank charges, there will be no computation problems for ITC. However, if GST is not shown separately, you may approach branch of your bank to obtain a consolidated statement of charges in your account also.

Most important point to consider as regards ITC on bank charges is that the ITC on such bank charges is reflected in your GSTR-2A so that ITC claimed by you in GSTR-3B is matched with ITC paid by the bank on your behalf.

Is it necessary to intimate GST numbers to bank for obtaining ITC on bank charges

Yes, If you want to claim ITC for GST on bank charges, you should intimate your GST registration numbers to your bank so that such ITC is correctly reflected in GSTR-2A on the basis of GST return filed by the bank.

What should be done if ITC is not reflected in GSTR-2A

There may be two reasons for non-reflection of ITC in GSTR-2A:

• Either any mistake or error made by bank while submitting its GST return or
• Non-updation of your GST numbers in bank’s database

In both the cases above, it is advisable to approach the bank branch and make request for suitable correction or updation by the bank. When the bank will make correction in their return, such GST amount would get reflected in GSTR-2B of the subsequent month.

What is the entry for GST on bank charges in the books of accounts

Bank charges are indirect expenses in nature and therefore, forms part of Profit & Loss Account in the financial statements. However, GST levied thereon is to be treated as an asset.

Suppose, Bank charges are Rs. 100 and GST thereon is 18% (CGST 9% SGST 9%). Following entry is made:

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