Key Takeaways on GST for Banking and Financial Services
- Interest on loans and advances is EXEMPT from GST under Sl. No. 27 of Notification 12/2017-Central Tax (Rate), except interest on credit card dues. Most fees and service charges attract GST.
- Processing fees, prepayment charges, documentation fees, ATM fees, annual card fees - all attract 18% GST. Cheque dishonour fines and RBI-style penal charges on loans are not taxable (Circulars 178/10/2022-GST and 245/02/2025-GST).
- SAC 997111 applies to central banking services (services by RBI are exempt). SAC 997113 covers credit-granting services including loan processing fees, guarantees, and letters of credit.
- Businesses registered under GST CAN claim ITC on bank service charges paid for business purposes, provided the bank issues a valid GST invoice with the business GSTIN.
- NBFCs making any taxable supply must register once aggregate turnover (including exempt interest) exceeds ₹20 lakh, and must either reverse ITC on exempt interest income under Section 17(2) or opt for the 50% ITC option under Section 17(4) and Rule 38.
- Individual life insurance (including term and ULIP) and individual health insurance premiums are exempt from GST from 22 September 2025; group policies still attract 18%.
Every business in India deals with bank charges, loan processing fees, and financial services - and all of these attract GST. Business owners are often confused about whether bank GST charges can be claimed as Input Tax Credit (ITC), and NBFCs and banking companies need clarity on GST compliance.
This guide covers the complete GST framework for banking and financial services in 2026, including rates, SAC codes, ITC eligibility, and compliance requirements.
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1. GST Applicability to Banking: The Interest vs Fee Distinction
The most fundamental rule in GST for banking and financial services is the distinction between:
| Transaction Type | GST Applicability |
|---|---|
| Interest on loans, advances and deposits (other than credit card interest) | ❌ EXEMPT - no GST (Sl. No. 27, Notification 12/2017-CT (Rate)) |
| Fees and service charges | ✅ Taxable at 18% (a few penalty-type charges excepted, see below) |
What is EXEMPT from GST?
- Interest on loans, advances, and deposits
- Interest on savings accounts, fixed deposits, recurring deposits
- Additional or penal interest on delayed loan EMIs, which is treated as interest (Circular 102/21/2019-GST)
- Penal charges that banks and NBFCs levy under RBI's 18 August 2023 directions for breach of loan terms (Circular 245/02/2025-GST; does not cover credit cards)
- Cheque dishonour fines charged by a bank (Circular 178/10/2022-GST, para 7.3)
Not exempt: interest and finance charges on credit card dues are specifically excluded from Sl. No. 27 and attract 18% GST.
What is TAXABLE at 18%?
| Bank Charge | GST Rate |
|---|---|
| Processing fees | 18% |
| Prepayment charges / foreclosure charges | 18% |
| Documentation charges | 18% |
| ATM charges (beyond free limit) | 18% |
| Credit card annual / renewal fees | 18% |
| Debit card annual fees | 18% |
| Locker rent | 18% |
| Demand draft / pay order charges | 18% |
| NEFT / RTGS / IMPS transfer fees | 18% |
| Cheque book issuance fee | 18% |
| Bank guarantee commission | 18% |
| Letter of Credit (LC) charges | 18% |
| Account maintenance charges | 18% |
| SMS alert charges | 18% |
2. SAC Codes for Banking and Financial Services
| SAC Code | Service Description | GST Rate |
|---|---|---|
| 997111 | Central banking services | Exempt (services by RBI) |
| 997112 | Deposit services | Interest exempt; fees 18% |
| 997113 | Credit-granting services including stand-by commitment, guarantees and securities | Interest exempt; fees 18% |
| 997114 | Financial leasing services | 18% (interest component of leasing exempt) |
| 997119 | Other financial services (except investment banking, insurance and pension services) | 18% |
| 997120 | Investment banking services | 18% |
| 997132 | Life insurance services (excluding reinsurance) | Individual policies exempt from 22 Sep 2025; group policies 18% |
| 997133 | Accident and health insurance services | Individual health policies exempt from 22 Sep 2025; group policies 18% |
| 997152 | Brokerage and related securities and commodities services | 18% |
| 997153 | Portfolio management services (except pension funds) | 18% |
3. Common Bank Charges and GST Treatment
| Bank Charge | GST Rate |
|---|---|
| Account maintenance charge | 18% |
| NEFT / RTGS / IMPS fees | 18% |
| Cheque book issuance fee | 18% |
| Cheque dishonour fine | Not taxable (Circular 178/10/2022-GST) |
| Penal charges on loans under RBI directions | Not taxable (Circular 245/02/2025-GST) |
| Locker rent | 18% |
| Demand draft charges | 18% |
| Loan processing fee | 18% |
| Prepayment penalty | 18% |
| Credit card annual fee | 18% |
| Credit card interest / finance charges | 18% |
| ATM charges (beyond free limit) | 18% |
| Bank guarantee commission | 18% |
| Letter of Credit charges | 18% |
| SMS alert charges | 18% |
The SAC for each charge is the bank's own classification and appears on its GST invoice or statement; most fee income falls under 997112, 997113 or 997119.
4. ITC on Bank Charges for Businesses
Can Businesses Claim ITC on Bank GST Charges?
YES. Bank GST charges are an input service for GST-registered businesses. Businesses can claim ITC on bank charges paid, subject to:
| Condition | Requirement |
|---|---|
| Valid GST invoice | Bank must issue a GST-compliant invoice with the business GSTIN |
| Business purpose | Charges must relate to business activity |
| Not blocked | Business bank charges are not listed in Section 17(5); only items such as life and health insurance (with exceptions) and goods or services for personal consumption are blocked |
| GSTR-2B reflection | ITC must be reflected in GSTR-2B from the bank |
ITC Block on Personal Banking
Individuals using banking services for personal purposes cannot claim ITC. Businesses must ensure the bank has the correct GSTIN for the business account to claim ITC.
What About Credit Card GST Charges?
- Credit card annual fees paid by a business: ITC is available (if used for business)
- Credit card annual fees paid by an individual: ITC is NOT available
- Interest on credit card dues: 18% GST (credit card interest is excluded from the Sl. No. 27 interest exemption); ITC is available to a business on the same basis as card fees
5. NBFCs and GST Compliance
GST Registration for NBFCs
An NBFC that makes any taxable supply (for example processing fees) must register once its aggregate turnover exceeds ₹20 lakh in a financial year (₹10 lakh in special category states under Section 22). Aggregate turnover includes exempt interest income.
ITC Reversal for NBFCs (Section 17(2) or Section 17(4))
NBFCs making exempt supplies (interest income) cannot keep ITC attributable to them. Under Section 17(4), a banking company or financial institution, including an NBFC, can choose each financial year between:
- Proportionate reversal under Section 17(2) read with Rules 42 and 43, or
- The 50% option under Rule 38: avail 50% of eligible ITC on inputs, capital goods and input services every month, and the balance lapses. Once chosen, the option cannot be withdrawn during the rest of the financial year. The 50% restriction does not apply to tax paid on supplies between registrations of the same PAN.
Simplified reversal formula (Rule 42 works it out monthly on common credit):
ITC Reversal on common credit = Common ITC × (Exempt Turnover / Total Turnover)
GSTR-3B: Careful Computation Required
NBFCs must carefully compute the exempt vs taxable supply ratio for ITC reversal.
Exempt Supply for NBFCs
- Interest on loans - exempt
- Other income (processing fees, etc.) - taxable
Is NBFC Income Entirely Taxable or Exempt?
- Interest income: 0% GST (exempt)
- Processing fees, service charges: 18% GST
Are NBFCs Entitled to Refund of Accumulated ITC?
No, unless the accumulated credit relates to exports or zero-rated supplies.
6. Insurance Services GST
From 22 September 2025 (GST 2.0, 56th GST Council; Notification 16/2025-Central Tax (Rate)), individual life and health insurance is exempt from GST.
| Insurance Type | GST Rate | Notes |
|---|---|---|
| Individual term life insurance | Exempt | Premiums paid on or after 22 Sep 2025 |
| Individual endowment, money-back and ULIP policies | Exempt | Earlier 4.5% first year / 2.25% renewals (traditional) or 18% on charges (ULIP) |
| Individual health insurance, including family floater and senior citizen policies | Exempt | Earlier 18% |
| Reinsurance of the above individual policies | Exempt | |
| Group life and group health insurance | 18% | Exemption covers individual policies only |
| Insurance agent commission | 18% under reverse charge | Paid by the insurer, not charged by the agent |
Premium instalments paid before 22 September 2025 carried the old rate. Because the insurer's outward supply of individual policies is now exempt, insurers cannot take ITC on the related inputs, including agent commission.
7. Stockbroker and Mutual Fund Distributor GST
| Service | GST Rate |
|---|---|
| Brokerage charged by stockbroker (SAC 997152) | 18% |
| Mutual fund distributor commission from the MF or AMC | 18% under reverse charge (paid by the AMC) |
| Demat account charges (DP charges) | 18% |
| AMC fund management fee | 18% |
Registration Requirements
- Mutual fund distributors do not charge GST on commission from a mutual fund or AMC, because the AMC pays it under reverse charge (Notification 13/2017-Central Tax (Rate)). A distributor whose only supplies are such reverse charge supplies is not required to register (Notification 5/2017-Central Tax). A distributor with other taxable income registers under the normal Section 22 limit.
- Stockbrokers charge 18% GST on brokerage and register under the normal rules.
8. Place of Supply for Financial Services (Section 12(12) IGST Act)
Under Section 12(12) of the IGST Act, the place of supply for banking and other financial services, including stock broking, is the location of the recipient on the records of the supplier. Registration status of the recipient does not matter.
| Situation | Place of Supply |
|---|---|
| Recipient's location is on the supplier's records | Location of the recipient on those records |
| Recipient's location is not on the supplier's records | Location of the supplier |
Critical for: Determining whether IGST or CGST+SGST applies.
Example
- Bank (Delhi) provides services to a business whose Mumbai address is on its records: Place of supply is Maharashtra, so IGST applies.
- Bank (Delhi) provides services to an individual whose Mumbai address is on its records: Place of supply is still Maharashtra, so IGST applies. Only if the bank has no address of the customer on record is the place of supply Delhi (CGST+SGST).
9. Reverse Charge Mechanism (RCM) on Financial Services
Import of Financial Services
- Import of financial services from foreign banks/financial institutions is taxable under RCM.
- The Indian recipient (other than a non-taxable online recipient) pays IGST under RCM on such imports (Notification 10/2017-Integrated Tax (Rate), Sl. No. 1).
- Consideration by way of interest on a foreign loan remains exempt.
Indian Branch of a Foreign Bank
- An Indian branch and its foreign head office are treated as establishments of distinct persons (Explanation 1 to Section 8, IGST Act), so taxable services received by the branch from its head office are an import of services, taxable under RCM.
Legal Basis
- Section 7(4) of the IGST Act treats import of services as an inter-state supply, and Section 5(3) allows the government to notify services on which the recipient pays IGST under reverse charge.
10. Common ITC Mistakes to Avoid
1. Claiming ITC on personal credit card charges
ITC on personal credit card charges is blocked. Only business credit card charges qualify.
2. Not claiming ITC on valid bank service GST invoices
Many businesses overlook GST on bank charges and do not claim ITC - leaving money on the table.
3. NBFC not reversing ITC proportionate to exempt interest income
NBFCs must either reverse ITC under Section 17(2) for exempt interest income or opt for the 50% credit under Section 17(4) and Rule 38.
4. Not linking GSTIN to business bank account
If your bank does not have your GSTIN on the business account, ITC will not reflect in GSTR-2B.
5. Confusing exempt interest with taxable fees
Interest on loans and deposits is exempt (credit card interest is not); processing fees, prepayment charges, and other services are taxable at 18%.
11. Key Takeaways
| Point | Details |
|---|---|
| Interest on loans | Exempt from GST (Sl. No. 27, Notification 12/2017-CT (Rate)); credit card interest taxable at 18% |
| Bank fees and charges | 18% GST (cheque dishonour fines and RBI penal charges on loans not taxable) |
| SAC for banking services | 997111–997119 depending on service |
| ITC on bank charges | Available for GST-registered businesses |
| NBFC compliance | Register above Rs 20 lakh aggregate turnover; reverse ITC under Section 17(2) or take 50% under Section 17(4) |
| Insurance rates | Individual life and health policies exempt from 22 Sep 2025; group policies 18% |
| Stockbroker charges | 18% GST |
| RCM on imports | Import of financial services taxed under RCM |
12. Where Tax Garden Helps
GST on banking and financial services is complex - the distinction between exempt interest and taxable fees, ITC on bank charges, and NBFC compliance all require careful attention. A single error can lead to missed ITC, tax demands, or penalties.
Tax Garden's GST experts help you:
- Claim ITC on all eligible bank charges
- Identify which bank charges attract GST and which are exempt
- Comply with Section 17(2) ITC reversal for NBFCs
- Respond to GST notices on financial services
- File GSTR-1, GSTR-3B, and annual returns correctly
Looking for expert help with gst on banking services india 2026, gst on bank charges india, sac code for banking services, itc on bank charges, gst on financial services india? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
GST on Banking and Financial Services: Frequently Asked Questions
Is GST applicable on bank interest?
No. Interest on loans, advances and deposits is exempt under Entry 27 of Notification 12/2017-Central Tax (Rate), covering services where the consideration is interest or discount. GST applies to the fees and service charges a bank or NBFC collects, such as processing fees and foreclosure charges. The main exception is interest on credit card dues, which is taxable.
What is the GST rate on bank charges?
Bank fees and service charges, such as loan processing fees, foreclosure charges, ATM charges beyond the free limit, card annual fees, locker rent, demand draft and NEFT or RTGS fees, and guarantee or LC commission, attract 18% GST. The bank shows the GST separately on the statement or a GST invoice.
Can I claim ITC on bank GST charges for my business?
Yes. GST-registered businesses can claim ITC on bank service charges paid for business purposes, provided the bank issues a valid GST invoice with the business GSTIN.
Do NBFCs need to register for GST?
An NBFC must register once its aggregate turnover crosses Rs 20 lakh in a financial year, if it makes any taxable supply such as processing fees. Aggregate turnover includes exempt interest income, so most lending NBFCs cross the limit even when their fee income is small. In special category states the limit is Rs 10 lakh.
What is the ITC reversal requirement for NBFCs?
Because interest income is exempt, an NBFC cannot keep ITC attributable to it. Under Section 17(4) a banking company or financial institution, including an NBFC, can choose each year either to reverse credit proportionately under Rules 42 and 43, or simply to avail 50% of eligible ITC every month and lapse the rest. The option cannot be changed during the year.
What is the GST rate on stockbroker brokerage?
Brokerage charged by a stockbroker and demat or depository participant charges attract 18% GST, collected by the broker or DP. Commission earned by a mutual fund distributor from an AMC is also taxed at 18%, but under reverse charge, so the AMC pays that GST and the distributor does not charge it on its invoice.
Is GST applicable on credit card interest?
Yes. Unlike interest on loans, interest and finance charges on unpaid credit card dues are specifically excluded from the interest exemption, so they attract 18% GST. Card annual fees, late payment fees and other card charges are also taxed at 18%.
What is the GST treatment of services from foreign banks?
Fees charged by a foreign bank to an Indian business, for example for arranging an overseas loan or issuing a guarantee, are an import of services. The Indian recipient pays 18% IGST under reverse charge and can claim it back as ITC if used for business. Interest paid on a foreign loan stays exempt.
Sources: GST portal (gst.gov.in); CBIC Circulars 102/21/2019-GST, 178/10/2022-GST and 245/02/2025-GST; Department of Financial Services (financialservices.gov.in); ClearTax; TaxGuru; Vakilsearch; IndiaFilings; CII; Finance Act 2025; Budget 2026 proposals; Sidat Networks; The Economic Times; CNBC TV18. Verify current rates, SAC codes, and procedures on gst.gov.in before acting, as rules may be updated periodically. This article is general information on GST for banking and financial services and not a substitute for professional advice.
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