# Banking & Financial Services Exemptions (Entries 27, 27A, 34, 39A)

## Entry 27 – Interest / Discount & Inter-Bank Forex

Services by way of –

(a) Extending deposits, loans or advances in so far as consideration is represented by interest or discount (other than interest on credit card services); and

(b) Inter-se sale or purchase of foreign currency amongst banks / authorised dealers, or between banks and such dealers.

## Entry 27A – PMJDY

Services by a banking company to Basic Saving Bank Deposit (BSBD) account holders under Pradhan Mantri Jan Dhan Yojana.

## Entry 34 – Small Card Settlements

Services by an acquiring bank in relation to settlement of an amount up to Rs.2,000 in a single transaction via credit/debit/charge/payment cards.

Acquiring bank: a bank/NBFC/FI/person who makes payment to the merchant who accepts the card.

## Entry 39A – IFSC Intermediary

Services by an intermediary of financial services located in a multi-services SEZ with IFSC status to a customer located outside India, for IFSC, in currencies other than INR.

## Scope of "Interest / Discount" – Entry 27 Drill-down

Covers cases where moneys due (deposits, loans, advances) are used/retained on payment of time value of money.
Does NOT cover equity investments or any share in profits.
Interest = amount payable on borrowed money/debt (including deposits, claims), but excludes: service fees, processing charges, unutilised credit facility charges.
Covered: FDs, savings deposits, loans, overdrafts, mortgages, corporate deposits – to the extent represented by interest/discount.

## Discounting

Invoice/cheque/bill discounting is exempt only to the extent consideration is discount (treated as a credit facility).

## What is NOT Exempt under Entry 27

Service charges, documentation fees, broking charges, administrative charges, entry charges – taxable.
Interest on outstanding credit card dues (late payment) – specifically excluded → TAXABLE.

## Delayed Payment Charges in Capital Markets

Interest / delayed payment charges for delay in brokerage / settlement / margin trading facility = EXEMPT under Entry 27.

## Penal / Additional Interest on Overdue Loans (Circular 102/21/2019-GST)

Penal interest charged by the lender on delayed EMIs of a loan/advance = treated as interest → EXEMPT under Entry 27.
Penal interest charged by the seller on delayed instalments of the purchase price = part of value of the supply of the underlying goods → TAXABLE at the rate of that supply.
Not treated as 'liquidated damages'/Schedule II tolerance of an act.

## Forex Sale by Banks / Authorised Dealers

Authorised dealer of foreign exchange [Sec 2(c) FEMA, 1999]: authorised dealer, money changer, off-shore banking unit or any other person authorised u/s 10(1) of FEMA to deal in foreign exchange/securities.
Entry 27(b) covers forex transactions only between: (i) banks ↔ banks, (ii) authorised dealers ↔ authorised dealers, (iii) banks ↔ authorised dealers.
Forex sale to general public is NOT covered – it is taxable (value determined under Rule 32(2)).
Services by commercial banks to RBI are taxable – not covered by any exemption.

Worked example

### Example 1

Example 1 – Sale on EMI by seller: X sells a mobile to Y for Rs.40,000 payable in 4 monthly instalments of Rs.11,000. If Y delays, penal interest is Rs.500 p.m. → Penal interest is part of the value of supply of the mobile (it is consideration from the seller for the supply) and is taxable at the GST rate of mobile, regardless of separate invoicing.

### Example 2

Example 2 – Loan from NBFC: Y purchases the mobile for Rs.40,000 using a loan from M/s ABC Ltd. at 2.5% p.m. interest + 1.25% penal interest on delay. → (i) Penal interest charged by ABC Ltd. (lender) is interest on a loan → EXEMPT under Entry 27. (ii) Processing/service charges of ABC Ltd. are TAXABLE (not interest). (iii) Value of mobile supply for GST stays at Rs.40,000.

### Example 3

Example 3 – Card Settlement: A acquiring bank settles a Rs.1,800 swipe by a customer at a retailer. → Amount ≤ Rs.2,000 → Service of the acquiring bank is EXEMPT under Entry 34. If swipe was Rs.2,100, full charge becomes taxable.

### Example 4

Example 4 – Forex: SBI sells USD to ICICI Bank under inter-bank forex deal → EXEMPT (Entry 27(b)). SBI sells USD to Mr. Raj travelling abroad → TAXABLE (Entry 27(b) covers only inter-bank/AD).

⚠️ Common exam mistakes

Claiming exemption on processing fees, documentation charges or pre-payment penalties – Entry 27 covers ONLY interest/discount.
Treating interest on outstanding credit card balance as exempt – it is specifically EXCLUDED from Entry 27.
Confusing penal interest by a lender (exempt) with penal interest by a seller on delayed instalments (taxable, part of value of supply).
Applying Entry 27(b) to forex sold to walk-in customers – it covers only inter-bank/authorised dealer transactions.
Forgetting that services by commercial banks to RBI are taxable – there is no specific exemption.

Bare-Act text Entry 27 / 27A / 34 / 39A · Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 · click to expand

Notification No. 12/2017-CT(R), Entry 27: Services by way of – (a) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services); (b) inter se sale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange or amongst banks and such dealers.

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Banking & Financial Services – Entries 27, 27A, 34, 39A

Worked example

⚠️ Common exam mistakes