Following demonetization of old high value notes, Central Government has been taking steps to promote cashless or digital transactions to take India towards a less-cash economy. In a bid to promote digital transactions, the government has exempted services provided by a bank/financial institution in relation to settlement of an amount up to Rs. 2,000 in a single transaction through credit, debit card or other payment card service. To give this effect a new entry no. 64 has been inserted in Mega Exemption Notification No. 25/2012-ST dated 20.06.2012 vide Notification No. 52/2016-ST dated 08.12.2016. The texts of the new entry are given below for your reference:

64. Services by an acquiring bank, to any person in relation to settlement of an amount upto two thousand rupees in a single transaction transacted through credit card, debit card, charge card or other payment card service. Explanation. — For the purposes of this entry, “acquiring bank” means any banking company, financial institution including non-banking financial company or any other person, who makes the payment to any person who accepts such card.”

For e.g.– A purchase worth Rs. 2000 was made from a shop. The buyer paid through debit/credit card to the seller. For such transaction, bank charged 1% of Rs. 2000 i.e. Rs. 20 in the name of bank charges for the purpose of settlement of such amount into the account of seller. Before such exemption, Service Tax was levied by bank on Rs. 20 at the rate of 15%, amounting to Rs. 3. W.e.f. 08.12.2016, i.e. date of said notification, Service Tax amount of Rs. 3 would not be charged by bank.