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FinMin's insidious way to tax PMJDY account holders

By IndianMandarins- 26 Nov 2018


The blinkered and self-serving vision of the FinMin may cause it a great embarrassment.

The PMO has reportedly convened a meeting of PSBs' and tax officials to break the stalemate between them on the issue of taxing free services provided by the former on minimum balance accounts. The issue has been lingering since June this year without any breakthrough.


The sum and substance of the issue are that the FinMin has been pressuring banks to pay service tax plus penal interest plus a penalty for providing free services to minimum balance account holders who are mostly poor people. The tax notice of Rs 40,000 crores spans the five-year period between 2012-2017.


The obvious objective is to rob banks to bridge the fiscal deficit. The problem is if banks were compelled to pay the claimed taxes, they may have no option but to pass on the costs to consumers which, in turn, may discourage people from availing off banking services versus the government objective of bringing more and more people in the banking network.


Bankers warn that if they have to pay taxes on free services, they may be constrained to withdraw these services, mostly for accounts opened under the NDA government’s pet financial inclusion programme - Pradhan Mantri Jan Dhan Yojana.

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