GST on ATM transactions, cheque books: What you need to know

The Union government has clarified whether one has to pay GST on cash withdrawals and how many free transactions are allowed per month before certain charges are levied by the banks.

After the GST regime kicked off in India in July 2017, the percentage of taxes one pays differs from one category to the other. Recently, after the GST Council meeting, GST slabs were revised for packed foods, also there were reports of taxes being levied on banking services including issuance of cheque books to customers.

The Opposition parties have raised the issue of price rise and GST in the ongoing monsoon session of the Parliament. They had sought an answer from the Union Finance Minister Nirmala Sitharaman on the issues.

Also read: PAN or Aadhaar mandatory for deposits, withdrawals of ₹20 lakh or more in a year

On Tuesday, Sitharaman spoke in the Raja Sabha on the issue of price. She also clarified the issue of GST on cash withdrawals. Here is what she said.

“There is no GST on withdrawal of cash from banks… 5+5=10 transactions in a month is totally free when withdrawn from ATMs,” she said.

According to the minister, banks won’t levy any charges and taxes on 10 transactions per month. However, after that, a customer has to pay charges per transaction plus service charge.

Also read: RBI restricts withdrawals from cash-strapped Yes Bank at ₹50,000

On the issue of GST on cheque books, Sitharaman clarified that GST is levied only on the bank purchasing the cheque books from the printer and no tax on customer cheques.

What RBI said

Also, the ATM transactions’ limit varies on the types of accounts one holds and it is different for each bank.

As per the Reserve Bank of India (RBI), customers are eligible for five free ATM transactions (inclusive of financial and non-financial transactions) from their own bank plus five from other banks (three free in metro cities and five in non-metro cities).

“Customers are eligible for five free transactions (inclusive of financial and non-financial transactions) every month from their own bank ATMs. They are also eligible for free transactions (inclusive of financial and non-financial transactions) from other bank ATMs viz. three transactions in metro centres and five transactions in non-metro centres,” RBI had said in a statement in June 2021.

“Beyond the free transactions, the ceiling/cap on customer charges is ₹20 per transaction. To compensate the banks for the higher interchange fee and given the general escalation in costs, they are allowed to increase the customer charges to ₹21 per transaction. This increase shall be effective from January 1, 2022. Applicable taxes, if any, shall be additionally payable,” it added.

Also read: 10 key changes in Income Tax rules this year

So, as per the RBI, after your free quota, a charge of ₹21 per transaction plus taxes will apply.

Also, RBI had said last year, “given the increasing cost of ATM deployment and expenses towards ATM maintenance incurred by banks / white label ATM operators, as also considering the need to balance expectations of stakeholder entities and customer convenience, it has been decided… Allow increase in interchange fee per transaction from ₹15 to ₹17 for financial transactions and from ₹5 to ₹6 for non-financial transactions in all centres. This shall be effective from August 1, 2021.”