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Yes, you can claim Input Tax Credit on bank charges under Goods And Services Tax , and there are official circulars that provide guidance on this matter. A GST taxpayer can claim Input Tax Credit on bank charges under the Goods and Services Tax (GST), provided that the bank charges are incurred for business purposes and meet the eligibility conditions of ITC under GST law. For example, charges related to services like account maintenance, processing fees, loan charges, etc., are generally eligible for ITC. Here are a couple of relevant circulars:
GST taxpayer cannot claim Input Tax Credit on the GST charged by the bank for currency exchange services. The GST on currency conversion services falls under exempt or non-creditable services as it is a financial service. Hence, the 18% GST charged on foreign currency exchange by banks is not eligible for Input Tax Credit. However, there are important distinctions:
The reason you cannot claim ITC on the GST charged for foreign exchange services is that financial services, like currency exchange, fall under exempt or blocked categories for ITC under GST law. Specifically:
Blocked Credit : Certain services, like financial transactions, are excluded from Input Tax Credit eligibility as per Section 17(5) of the CGST Act, 2017. Financial services, including currency exchange, are generally seen as personal or financial expenses and not directly related to the production or supply of taxable goods/services.
Nature of Service: Since foreign exchange services are a financial service and not directly tied to your export-import business’s core activities of supplying goods or services, the GST paid on these services is not creditable.
Therefore, even though you pay 18% GST on currency exchange, it does not qualify for Input Tax Credit as it is considered a financial transaction rather than a business input. To summarize:
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