Bank denying GST refunds

Hey! This situation with the bank denying GST refunds on penal charges is a common pain point.

Here’s the gist:

Why the bank says GST on penal charges can’t be refunded:

• GST on penalties/late fees is output tax collected by the bank on the service (penal interest).

• The bank deposits this GST to the government.

• When a penalty is reversed (i.e., refund of penal charges), the bank usually adjusts or reverses the GST on its books.

• However, from your side (as a customer), if the bank doesn’t adjust/refund GST, you cannot claim GST input credit on penal GST paid.

• So, effectively, the GST on penalty is non-refundable to you if the bank doesn’t refund or adjust it.

Is there any provision for GST refund on such penal charges if the bank admits fault?

• If the bank admits the penal charges were wrongly applied, they should issue a credit note or reverse the invoice including GST.

• This means the bank would adjust their GST liability and refund the penal charges + GST to you.

• If they only refund penal interest and not GST, you lose the input credit on GST.

What can you do?

1. Request the bank for a credit note or formal reversal of penal charges including GST.

2. If the bank refuses, you cannot claim GST input credit on penal GST paid.

3. You may approach GST authorities or consumer forums, but typically the GST refund depends on the service provider (bank) reversing the tax.

4. Keep all communication in writing requesting reversal of GST component.

In short:

• GST on penal charges is payable to the government by the bank.

• If the bank accepts fault, they should reverse the GST via credit note.

• Without the bank’s reversal, you cannot claim refund or input credit on GST paid on penalty.