The short answer is Indirect Expenses. Create a ledger called Bank Charges under the Indirect Expenses group, and every account maintenance fee, cheque return charge and NEFT fee goes there.
That answer is correct and it is also where most people stop, which is how a single Bank Charges ledger ends up holding four different kinds of cost that belong apart. The grouping question is easy. The classification question underneath it is the one that costs you at year end.
The grouping, plainly
In Tally, the group decides where a ledger appears in the financial statements, and Indirect Expenses puts bank charges into the Profit and Loss below the gross profit line, which is where they belong for an ordinary business.
Create it once per company: Gateway of Tally, Create, Ledger, name it Bank Charges, set Under to Indirect Expenses. Nothing about the answer changes with the size of the business or the version of Tally. If you are unsure what a group is doing to your statements, the voucher types article covers how classification flows through to reporting.
Four things a statement calls a charge
A bank statement uses one vocabulary for costs that behave very differently in the books:
- Service charges. Account maintenance, cheque book issue, cheque return, NEFT and RTGS fees, SMS alerts. These are the genuine Bank Charges, under Indirect Expenses.
- Interest on borrowing. Interest on an overdraft, cash credit or term loan is a finance cost, not a service charge. Many firms keep it in a separate Interest ledger, still under Indirect Expenses, because it is disclosed and analysed separately.
- Bank commission. Charges on collection, remittance or letters of credit. Ordinarily Indirect Expenses too, but worth its own ledger where the volume is material.
- Card and merchant fees. Payment gateway and POS deductions, which are frequently netted off receipts rather than charged separately, and therefore often never booked at all.
Pro tip
One Bank Charges ledger is fine for a small file. Split interest out the moment there is a borrowing, because interest and service charges answer different questions at review.
The charge that arrives inside another transaction
This is the one that gets missed, and it is not a classification error so much as an extraction error.
Some banks do not print their fee as a separate line. An ATM withdrawal beyond the free limit, or a cash transaction over the counter, can appear as a single row where the fee has already been folded into the amount. The statement shows one number, and it is not the cash the client actually took.
Book that row as it appears and two things go wrong at once. The cash figure is overstated by the fee, and the fee never reaches an expense head at all. Worse, the folded amount usually gets classified as a cash withdrawal, which makes it a contra rather than an expense, so the fee lands in the client's own cash in hand instead of the Profit and Loss.
Important
A bundled fee is invisible in the ledger because nothing looks wrong: the balance is right, the entry reconciles, and the only symptom is that cash in hand slowly drifts from the physical count.
GST on the charge is a separate question
Banks charge GST on most services, and it appears on the statement either as a separate line or inside the same debit. A registered business can generally claim input credit on it, which makes the split worth doing rather than dumping the gross amount into Bank Charges.
That has enough detail to be its own article: booking GST on bank charges in Tally covers the entry, and what actually qualifies for input credit from bank entries covers the part people get wrong.
Conclusion
Bank charges go under Indirect Expenses. The real work is separating a service charge from interest, and separating a fee the bank has hidden inside a withdrawal.
Greenote splits a bundled charge out of the withdrawal it was folded into, so the fee reaches a charges ledger and the cash figure is the cash actually taken. It reads the statement on your own PC and posts to your Tally. See how it classifies entries.
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