# Banking and Financial Services — Exemptions

## Entry 27 — Interest / Discount on Deposits, Loans, Advances

Exempt:

(a) Services by way of extending deposits, loans or advances in so far as consideration is represented by interest or discount (other than interest involved in credit card services);

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

### Scope of Entry 27(a)

Covers situations where moneys due (deposits, loans, advances) are allowed to be used or retained on payment of time value of money (interest/discount).
Does NOT cover investments by way of equity or any manner where the investor is entitled to a share of profit.
Interest = amount payable on moneys borrowed or debt incurred; EXCLUDES service fees / other charges on borrowed money, debt, or unutilized credit facilities.

### Examples Covered

Fixed deposits, savings deposits, loans, overdrafts, mortgages, corporate deposits — to the extent consideration is via interest/discount.
Invoice/cheque discounting: Covered to the extent of discount as it is a manner of extending credit.

### NOT Covered (Taxable)

Service charges, fees, documentation fees, broking charges, administrative charges, entry charges or other similar charges collected over and above interest on loan/advance/deposit.

## Entry 27A — Pradhan Mantri Jan Dhan Yojana (PMJDY)

Services provided by a banking company to Basic Saving Bank Deposit (BSBD) account holders under PMJDY → EXEMPT.

## Entry 34 — Small Card Transactions

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

Acquiring Bank: Any banking company, FI, NBFC, or any other person, who makes payment to any person who accepts such card.

## Entry 39A — Intermediary of Financial Services in IFSC

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 → EXEMPT.

'Intermediary of financial services in IFSC': A person who:

(i) is permitted/recognised by Govt of India or any IFSC Regulator; OR

(ii) is treated as person resident outside India under FEMA (IFSC) Regulations, 2015; OR

(iii) is registered under IRDAI (IFSC) Guidelines, 2015 as IFSC Insurance Office; OR

(iv) is permitted under SEBI (IFSC) Guidelines, 2015.

## Critical Carve-outs from Entry 27

### A. Interest / delayed payment charges on brokerage / margin trading

Interest charged for delay in payment of brokerage/settlement obligations/margin trading → EXEMPT under Entry 27.

### B. Late payment on credit card outstanding

Interest charged on outstanding credit card balances → TAXABLE. Specifically EXCLUDED from Entry 27.

### C. Additional / Penal Interest on Overdue Loans

Levied when EMI is not paid on time. Treatment depends on the context — see worked examples.

Worked example

### Example 1

Example 1 — FD interest: A bank pays Rs. 50,000 interest on a fixed deposit to a customer. Taxability of bank's service?

Solution: EXEMPT under Entry 27(a). The consideration (interest) is for deposits — covered by the exemption.

### Example 2

Example 2 — Loan processing fee: A bank charges Rs. 5,000 processing fee in addition to interest on a personal loan. Taxability?

Solution: Processing fee = TAXABLE (not interest). Interest portion = EXEMPT.

### Example 3

Example 3 — Credit card late payment: Credit card holder pays Rs. 1,500 as late payment charges / interest on outstanding credit card dues. Taxability?

Solution: TAXABLE. Interest on credit card outstanding is specifically excluded from Entry 27.

### Example 4

Example 4 — Acquiring bank settlement: Acquiring bank settles a Rs. 1,800 single card transaction. Taxability of its service?

Solution: EXEMPT under Entry 34 (single transaction up to Rs. 2,000).

### Example 5

Example 5 — Penal interest by seller (Mobile in installments): X sells a mobile to Y for Rs. 40,000 in 4 installments of Rs. 11,000 each. Y delays payment; penal interest of Rs. 500/month is charged by X. GST treatment?

Solution: The penal interest is part of the consideration for supply of mobile and TAXABLE under GST, regardless of how it is invoiced. (X is not a financier — it is a seller.)

### Example 6

Example 6 — Penal interest by financier (loan from NBFC): Y buys a mobile for Rs. 40,000 using a loan from M/s ABC Ltd at 2.5%/month interest with 1.25% penal interest for delays. GST treatment?

Solution: (i) Penal interest by ABC Ltd → EXEMPT under Entry 27 (relating to loan/advance). (ii) Service charges by ABC Ltd → TAXABLE (not interest). (iii) Value of mobile supply for GST = Rs. 40,000 (penal interest by financier excluded as it is on a separate loan transaction).

### Example 7

Example 7 — Inter-bank forex: Bank A sells USD to Bank B. Taxability?

Solution: EXEMPT under Entry 27(b) — inter se sale of foreign currency between banks.

⚠️ Common exam mistakes

Treating ALL interest as exempt — credit card interest on outstanding is TAXABLE.
Treating loan processing fees, documentation fees, broking charges as exempt — these are NOT interest and are TAXABLE.
Confusing penal interest from a SELLER (taxable, part of supply consideration) with penal interest from a FINANCIER (exempt as interest on loan).
Forgetting Entry 34's Rs. 2,000 SINGLE TRANSACTION limit — multiple smaller transactions adding up don't aggregate; each transaction tested separately.
Treating equity investments as covered under Entry 27 — Entry 27 only covers debt-type instruments where consideration is interest/discount, NOT share of profit.
Forgetting that for Entry 39A, services must be in currencies OTHER than INR for the IFSC exemption.

Reference: Entries 27, 27A, 34, 39A — Notification No. 12/2017-CT(R) dated 28.06.2017

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

Worked example

⚠️ Common exam mistakes