GST

AMB Charges, Including GST

The implementation of GST laws replaced a complex web of central and state taxes and further simplified the tax slabs to 5%, 12%, 18%, and 28%. This made banks a service provider and people to be the customers availing these services. One such service is availing the facility to open an account in a bank, thereby promising the bank to maintain an average monthly balance (AMB) in the account, which mostly gets ignored at the time of filling out an opening form. Later, these AMB charges became a matter of agony, leading to banks being blamed for unfair practices and, at times, dragged to court. In this article, we will detail the intricacies of GST and AMB charges.

What Is Tax

The word tax originates from the Latin word “taxare”, meaning to estimate. Tax is not a voluntary payment or donation but an enforced contribution. They are obligatory contributions made by individuals or corporations in the form of money to the government of India. Taxes are one of the major sources of income and are applicable on all levels, i.e. local to national.

Types Of Taxes

The Indian taxation system is broadly divided into two types: direct taxes and indirect taxes,

Direct Tax

Taxes like income tax, corporate tax, wealth tax, etc., are to be paid directly by an individual or an entity and cannot be transferred to any other person or entity. CBDT, i.e. the Central Board of Direct Taxes governed by the Department of Revenue, is the authority that assists the aspects of direct taxes in India.

Indirect Tax

While taxes like sales, service, VAT (Value added tax), custom duty, and excise duty, i.e. the taxes levied on goods and services, are to be paid indirectly.

 Apart from this, there is property tax, education cess, professional tax, entertainment tax, toll tax, etc., which fall into the other categories of taxes.

History Of Taxation In India

The taxation regime in India finds its origin in Manusmriti and Chanakya arthshastra, where the kings used to collect and regulate the taxes in a manner fair to their people and to aid the growth and development of the kingdom. Manusmriti described that the tax policy should be like a leech, calf and bee, which take their food little by little; similarly, the king should draw moderate annual taxes. According to Kalidas, taxes should be collected as the sun draws moisture from the earth to give it back a thousand times.

The Arthshastra (3^rd century BCE) deals with variable subject matters, including military, politics, defence, functioning of the state, and most importantly, economics, where Chanakya proposes the doctrine of segregation of taxes and how the affluent class must pay high taxes in comparison to the less privileged for the smooth functioning of the kingdom.

The legislative reform of taxation in India originated during the military mutiny of 1857, which led to the introduction of the Income Tax Act of 1860. Sir James Wilson introduced this Act during the British era to compensate for the losses that occurred during this mutiny.

The major contribution to the Indian taxation regime originated with the introduction of the Income Tax Act of 1886 which levied taxes on income from four sources including salaries (fixed compensation paid periodically to a person for his services), pensions (money paid regularly by the government or employer to a person in consideration of past service) and gratuities(benefit plan for an employee designed to help him during his/her retirement), company net profits(total amount of money that a business earns), interest on securities(tradable financial instruments, e.g. Equity, debt) and other sources(e.g. dividends, rental income, income from lotteries and online games).

The Income Tax Act of 1886 went through several amendments, ultimately leading to the origin of a novel income tax act of 1918, which made non-recurring and casual receipts of deductions as part of computing the taxable income.

Later, in 1922, the Milestone Act, i.e. Income Tax Act 1922¹, was passed, which organized and made flexible the income tax structure in India and included in its ambit the regime to build a proper administrative system for taxes in India.

Ultimately replacing all the previous laws and the innumerable amendments post-independence, the Income Tax Act 1961 was passed to the whole of India, including the territory of Sikkim and Jammu & Kashmir. It came into effect on the 1^st of April 1962. This Act introduced the Central Board of Direct Taxes (CBDT) by dividing the central board of revenue. Even today, the calculation of taxable income is determined as per the Act of 1961.

Under this Act, the tax imposed on the income belonged to five heads-

• Income from salary
• Income from business or profession
• Income from capital gains
• Income from house property
• Income from other sources

What Is Gst

Fiscal reforms are an integral part of enriching a country’s economy, and such reforms, when done to eradicate complex and inefficient tax regime, leads to embracing a powerful and systematic regime, such was the move when GST (goods and services tax) was introduced in India.

GST stands for “Goods and Services Tax”; it is a comprehensive indirect tax levied on the manufacture, sale, and consumption of goods as well as services at the national level.

The introduction of GST replaced all the indirect taxes that were imposed by the central and state governments separately.

Roadmap To Gst

• In the year 2000, discussion on GST started under the reign of the Vajpayee government, and an empowered committee headed by Asim Dasgupta, Finance Minister in the government of West Bengal, was formed.
• In 2007, the first formal announcement about GST was made by P Chidambaram, the union finance minister during the budget of 2007-08, and later, in the same year, a joint working group was set up by the empowered committee of state finance ministers.
• In 2008, the empowered committee submitted a report titled “A Model and Roadmap for Goods and Services Tax (GST) in India” containing recommendations about GST.
• The year 2009, the empowered committee released its first discussion paper on GST Tax in India.
• The year 2010, the empowered committee started working with the central government.
• In 2010, Mr Pranab Mukherjee, then union home minister, remarked in his budget speech about the implementation of GST from April 2011, which later increased to 2012.
• The year 2014 Constitution (122^nd Amendment) Bill was introduced in Loksabha by Finance Minister Mr. Arun Jaitely on 19^th December 2014.
• The year 2015, the Constitution (122^nd Amendment) Bill was passed on 6^th May 2015
• In 2017, the Central Goods and Services Act 2017 came into effect.

What Are Amb (Average Monthly Balance) Charges?

The average monthly balance charge is the minimum amount of money the account holder must maintain in their savings or current account. It is the least bank balance that a person needs to maintain as an account balance to avoid being penalized by the bank.

Why Do Banks Enforce Amb?

Usually, enforcement of AMB is considered tactics or a tool by the banks to control and penalize account holders, but in reality, there are certain solid reasons behind the same, which are as follows-

• AMB helps in assessing the account holder’s income stability, i.e. lapses in AMB can indicate an irregular income source or turbulent spending patterns.
• It helps determine the credit score for future loans, i.e. maintaining AMB consistently can contribute positively to the credit score and help with loans.
• It ensures the bank has sufficient capital, i.e. the banks invest the amount that account holders maintain as AMB and generate profits and interests for themselves.
• It acts as an inflation control measure, i.e. by controlling the liquid cash available to the people, the government can curb inflation.

Rbi Guidelines Related To Deduction Of Amb By The Banks

• Banks are advised to inform customers about the “minimum balance in savings bank accounts” in a transparent manner.
• Every customer must be informed at the time of opening the account about the penal charges to be initiated upon the non-maintenance of “minimum balance in savings bank accounts”.
• No undue advantage of customer difficulty or inattention by the bank, and instead of levying penal charges for non-maintenance on ordinary savings bank accounts, the bank may limit the services available on such accounts and revive the services after payment of AMB.

Recommendations of Damodaran committee-

In view of probable exploitation by the banks in levying the AMB charges, RBI formed a Damodaran committee asking for recommendations about customer service in the banks, which came into effect on April 1, 2015; the committee led down the following guidelines-

• Banks should inform the customer immediately about their account balance breaching the minimum balance limit by SMS/EMAIL/Letter.
• These guidelines must be brought to the notice of all customers, along with disclosing it on the bank’s website.
• The notice period will be 1 month from the date of intimation. After that, penal charges will be applicable after intimating it to the account holder.
• The penal charges to be levied should not vary and are to be decided with the approval of the board of the bank.
• The penal charges should be the fixed percentage levied on the amount of difference between the actual balance maintained and the minimum balance as agreed upon at the time of opening of the account.
• The penal charges should be reasonable.
• The balance in the savings account should not turn into a negative balance on account of AMB charges.

Taxation Of Amb Charges

CGST Act applies to the services provided by the service provider to the customer. Opening of savings accounts, corporate accounts, deposits, ATM services, Loans, etc.

Generally, the services provided by the bank are considered exempted from any service tax, but in reality, only a few services are eligible for that benefit.

These services are –

• Extending deposits, loans, or advances where consideration is represented by way of interest or discount.
• Sale or purchase of foreign currency amongst banks or authorized dealers of foreign exchange or amongst banks and such dealers.

The above-mentioned services are exempted from the tax bar. However, fees levied concerning credit cards, fund transfers, ATM transactions, processing fees, loans, penalties, and retention charges attract the GST of 18%. Therefore, the AMB charge will also attract the GST OF 18%.

How To Calculate Amb Charges

AMB charges are calculated by calculating the

Total of the closing balances in a month

Number of days in the month

i.e., AMB= (Sum of closing balances)/ (Number of days in a month)

List Of Amb Charges By Major Banks

S.NO.	BANKS	AMB CHARGES
1.	State Bank of India (SBI)	NIL for SBI Regular savings account.
2.	HDFC Bank	Metro & Urban Branches- INR 10,000Semi-Urban Branches- INR 5,000Rural Branches- INR 2,500
3.	Punjab National Bank	For Rural Branches – INR 50 to INR 100For Semi-urban Branches – INR 100 to INR 150For Urban/Metro Branches – INR 150 to INR 250
4.	ICICI Bank	For Metro/Urban/Semi-Urban/Rural locationsINR 100 + 5% of the Shortfall in the Required AMB.Gramin Locations5% of the Shortfall in the Required MAB
5.	Bank of Baroda	For Rural Branches – INR 500For Semi-urban Branches – INR 1,000For Urban/Metro Branches – INR 2,000

Judicial Opinions On Amb Charges

1. Parveen kumar v. Axis bank ltd. Dated 02.09.2021

Brief facts-

• Complainant Parveen Kumar filed a complaint against the opposition Axis Bank under the Consumer Protection Act.
• The complainant opened a salary account in Axis Bank bearing a zero balance.
• The account had a sum of less than Rs. 10000/- and the employer’s last payment to the complainant was Rs. 939; after this, the complainant was unemployed.
• The complainant deposited Rs. 5000 in his account, and the opposition deducted the entire amount with GST OF 18%, i.e. Rs. 4237.29 + Rs. 762.71 GST.
•  The complainant sent a letter to the respondent, but no details were given to him concerning the deduction of monthly charges.
• The complainant contended that the deducted charges were highly consolidated and caused financial loss to him.
• No prior intimation from the end of the bank caused mental agony, pain, or harassment to the complainant.
• The complainant prayed to receive compensation of Rs. 50000, Rs. 20000 as litigation cost, and Rs. 5000 originally deducted amount.
• The opposition accepted the above-mentioned facts as true but defended his contention by stating that the complainant knew about the deduction-related condition in the account opening form and asked for dismissal.
• The opposition accepted the charges deducted to be AMB charges + GST.

Judgment-

• Hon’ble Court stated that service was deficient on the part of the bank as a mere account opening form does not serve the purpose, and proper notice and communication through SMS/Email/Letter must be established by the bank while deducting AMB charges.
• Hon’ble court asked the bank to refund the amount of Rs. 4237/-+Rs.762/- along with the interest of 6% per annum from the date of deduction.
• Further, the amount of Rs.5000/- was ordered as compensation and Rs. 5000/- as cost of litigation.
• Compliance was asked to be made within 45 days from the date of receipt of the certified copy of the order.

2. Mr Dinesh Kumar Maheshwari V. State Bank Of Bikaner and Jaipur F.NO.CIC/SM/A/2009/002043AT,04.11.2010.

• This case was filed to elaborate on the queries asked in an RTI application regarding the bank grossly violating RBI directives about the procedure to be followed for penalty surcharge on customers failing to maintain a minimum balance in their accounts and related matters.
• According to the RTI, crores of rupees have been forfeited from the accounts of the customers for not maintaining a minimum balance without giving them proper notice, as provided in the RBI directives.
• The RTI insisted on the fact that usually, the banks publish the notice regarding AMB on their noticeboards, which are most of the times non-existent, making the banks liable for unfair business practices.
• It was contended that the bank is taking advantage of a lack of awareness amongst rural customers as they lack alternatives to open a bank account.
• The bank failed to comply with the RBI related to transparency in levying AMB.
• In this matter, the court directed the banks to initiate appropriate steps to publicize the procedure bank branches have to follow so that the customer could be made aware of the AMB charges plus the GST levied on the same.

3. Prashant Kumar nag v. ICICI bank ltd. (appeal no. 456/2009 of Chhattisgarh state commission) order dated 25.01.2010

This case came to the National Consumer Disputes Redressal Commission New Delhi as a revision petition no. 1154 of 2010.

• In this case, the petitioner was aware of the AMB charges to be deducted upon non-maintenance of the minimum balance in his account.
• The petitioner closed his account on 15.09.2006 after paying all the closure charges and the additional amount required by the bank.
• Even after the closure, the bank kept the account of the petitioner dormant and sent non-transactional charges in December 2006.
• Petitioner contended a deficiency in service at the end of the bank.
• After considering all the facts, the state commission directed the bank the payment of Rs.5000/- and Rs.1000/- as cost of litigation.
• The same order of the state commission was upheld by the National Consumer Disputes Redressal Commission, stating that they didn’t find any illegality, material irregularity, or jurisdictional error in the state commission’s order.

Conclusion

Even though Average monthly balance (AMB) charges are specified clearly in the account opening forms of all banks, it is the responsibility of the bank to maintain transparency and notify the customer before deducting these charges. Customers residing in rural areas must be made aware of AMB charges and GST using the technique of videos, pictures, or expert seminars. It is the ultimate responsibility of the Reserve Bank of India to keep a check on AMB charges accumulated by the bank and to take strict actions in scenarios of malpractice and fraud committed by the banks.

FAQ’S

1. https://incometaxindia.gov.in/pages/acts/income-tax-act-1922.aspx