Eligibility of GST ITC on Bank charges & Journal entry
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Whether ITC on Bank Charges is eligible or not?
The ITC on bank charges is an eligible credit only if conditions mentioned in Section 16 of CGST Act,2017 are fulfilled. Bank charges input credit also does not fall within the ambit of Blocked credit in Section 17(5) of CGST Act,2017.
We have discussed this issue along with the provisions of the CGST Act and also provided the list of common problems and solutions.
Input tax credit on Bank Charges
Goods and Service tax is levied on bank charges which are reflected in the bank statement along with the service charge. Now the question arises. Whether such GST Input credit can be claimed by the receiver (taxpayer) on the current account?
The input tax credit can only be claimed only if it is for the furtherance of business. However, the four conditions mentioned in Section 16 of CGST Act, 2017 needs to be fulfilled which are as follows.
- Possess tax invoice/ debit note or any other document.
- Goods and Services are received by him.
- The tax has been paid to the government by either Cash or ITC
- He has furnished the return under Section 39
Analysis of the above conditions on the eligibility of credit on Bank Charges
- The bank statement received by the taxpayer is a valid document to claim the Input tax credit on Bank charges, Such has already been clarified by the CBIC. Most of the banks provide a statement of charges along with GST which provides a clear view of the Taxable value of Bank Charges and GST levied.
Sometimes bank charges are levied by the central unit of the bank and IGST is levied, which is not separately shown in the Bank statement. In this case, obtaining a statement of charges is beneficial.
- The second condition is goods and services are received by him. Since they are reflecting in the Bank statement, it simply means the Bank charges services are received by the taxpayer.
- The tax has been paid to the government by either ITC or cash. When Bank will fill its GST return, it will show Bank charges as a Service (Outward Supply) and will pay the tax on the same.
- ITC on Bank Charges can only be claimed by the taxpayer if he has furnished the return specified under Section 39.
The above conditions are fulfilled. Hence, GST Credit can be claimed on bank charges.
GST entry of Bank Charges in Tally
Bank Charges are a type of expense and GST levied on them will form part of the input. Hence, it will be shown as an asset. The entry would be as follows.
Bank Charges A/C dr
GST Input A/C dr
To Bank A/c cr
What issues can arise while claiming Input Credit on Bank Charges?
We will discuss few issues that were faced by the taxpayers while claiming Input Credit of Bank Charges.
The issue arises when the GSTIN Number of the taxpayer is not provided to the bank. Bank considers it as Business to Consumer transaction in GST return while the taxpayer considers it to be a Business to Business transaction and claims Input Tax credit.
Such, Input credit is not reflected in the GSTR-2A of the taxpayer. Later on, when it is reconciled such an amount of Input credit is reversed along with Interest.
There are instances when the GST levied on the statement of charges provided by the bank differs from the Bank statement. Hence, it leads to an incorrect claim of Input Credit which will again pose a problem.
The reliable source is Bank Statement. Statement of Charges is usually generated at month-end and does not contain any reversals of next month.
Few of the transactions on which GST is levied can be left out by the bank unintentionally while filling their GST return. Such input is not reflected in GSTR-2A.
What action can be taken?
The details of an amount not reflecting in GSTR-2A along with the date of charge or transaction reference can be provided to Bank. The corrective action will be taken by the bank in their return and such amount will be reflected in GSTR-2B of the subsequent month.
Akash Arora is a Chartered Accountant by profession and the founder of this website. His expertise areas include compliance with Goods and Service tax and Direct taxes in India. He has written more than 70+ blogs on GST and Direct tax.
Connect with him at +918588918033 and gstmentor1@gmail.com
