Bank charges are the smallest line items on a statement and among the most consistently mishandled. A few hundred rupees of account maintenance here, a NEFT fee there, and the entire lot gets booked to a single Bank Charges ledger at the gross amount.
That is a quiet, recurring loss. Most of those charges carry GST, that GST is generally creditable for a registered business, and booking the gross figure to an expense ledger means the credit is never claimed. It is small each month and not small across a year, across a client base.
This article is about the bookkeeping mechanics: what carries GST, what does not, how the entry should be structured in Tally, and how to check it actually ties to GSTR-2B. Rates and rules change, so treat this as a description of the workflow rather than as tax advice, and confirm current positions before you rely on them.
Not everything the bank charges you carries GST
The first split to get right is between fees and interest, because they are treated completely differently and they sit next to each other on the same statement.
Fees for services generally attract GST. Account maintenance, cheque book issue, NEFT and RTGS charges, SMS alert charges, minimum balance shortfall, ATM usage beyond the free limit, stop payment, cheque return, locker rent, and processing fees on a loan are all consideration for a service.
Interest generally does not. Services by way of extending deposits, loans or advances, where the consideration is interest or discount, are exempt. So the interest debited on an overdraft or a term loan is not a GST-bearing supply, and there is no credit to claim on it.
The practical trap is that a loan account statement shows both. Interest on one line, processing or documentation charges a few lines below. Treating the whole account as "interest, no GST" is the single most common way credit gets lost.
Pro tip
Ask the client once, per bank, whether their GSTIN is registered against the account. If it is not, the bank is not reporting those charges against their GSTIN at all, and no amount of correct bookkeeping at your end will produce a claimable credit. This is a five minute fix at the branch that pays back every month.
Why the statement line is the problem
Bank statements are written for account holders, not for accountants. A charge frequently appears as one consolidated debit with the tax already inside it, and the narration rarely separates the two.
So you see a single line of, say, 590.00 with a narration like "CHRG NEFT" or "AMB CHRG". What that actually represents is 500.00 of service and 90.00 of GST at 18 percent, and only the 500.00 belongs in your expense ledger.
Book the 590.00 to Bank Charges and three things happen at once. The expense is overstated by the tax. The input credit is never taken. And the figure in your books will not agree with the taxable value the bank reported, so the reconciliation later will not tie either.
Important
Do not reverse-engineer the split from the statement alone and treat it as settled. The statement is not a tax invoice. The bank's consolidated GST statement or invoice is the document that establishes the taxable value and the tax charged, and it is what the credit rests on. Use the statement to spot the charge; use the bank's GST document to book it.
Structuring the entry in Tally
Once you have the split, the entry itself is straightforward. The charge is a payment out of the bank, so it is a Payment voucher, and the debit side carries three components instead of one.
CGST and SGST, or IGST?
For banking services the place of supply is determined by the location of the recipient as it appears on the supplier's records. In practice that means it follows the address the bank holds for the account, not the state the branch happens to sit in.
Where that recipient location and the supplier's location are in the same state, it is CGST plus SGST. Where they are in different states, it is IGST. This matters most for clients who banked in one state and later moved, and for accounts opened at a branch outside the client's home state, because those are exactly the cases where the intuitive answer is wrong.
Getting the ledger masters right first
None of this works if the masters are wrong. Bank Charges should sit under Indirect Expenses. The input tax ledgers should be under Duties and Taxes with the correct type of duty and tax set, otherwise the amounts will post but will not flow into the GST returns.
Set these up once per company file, correctly, before you process a single month. Fixing a tax ledger's configuration after six months of entries is considerably more work than setting it up on day one.
- Debit: Bank Charges, at the taxable value only. This is an Indirect Expense.
- Debit: the GST ledgers, at the tax amount. Either Input CGST and Input SGST, or Input IGST, depending on the point below.
- Credit: the bank ledger, at the gross amount actually debited from the account.
Reconciling against GSTR-2B
The entry being right in your books is only half of it. The credit is only safe if the bank actually reported the supply, and that shows up in GSTR-2B.
Bank charges are a common source of mismatch for two boring reasons. The first is the GSTIN registration point above: if the account does not carry the client's GSTIN, nothing was ever reported and there is nothing in 2B to match. The second is timing, where a charge levied at the end of a month is reported in the following period, so the credit is available a month later than the debit appears in the statement.
A practical habit: total the bank charge taxable values you have booked for the period, per bank, and compare that total against what the bank shows in 2B. You are looking for a single reconciling figure rather than line by line agreement. If the two are close and the difference is explained by month-end timing, the work is done. If they are far apart, the usual cause is the GSTIN, not your bookkeeping.
Where the time actually goes
None of the above is intellectually difficult. It is difficult because of volume.
A current account with reasonable activity throws off dozens of small charge lines a month. Every one needs to be spotted among several hundred other transactions, recognised as a charge rather than a payment to a party, separated from interest if it is on a loan account, split into taxable value and tax, and posted with the right tax ledgers. Multiply by twelve months and by a client base, and the cost is real even though no individual entry is hard.
This is exactly the kind of work worth pushing onto software. A tool that classifies each statement line by what it is, rather than dumping everything into one ledger, turns the recognition step from a manual scan into a review. Greenote gives every transaction a category as well as a counterparty, so bank charges surface as bank charges rather than as unidentified debits, and you review a short list instead of hunting through the full statement.
What software should not do is decide the tax treatment for you. The split, the place of supply and the credit position are judgement calls on the client's facts, and anything that silently assumes 18 percent on every line it thinks is a charge will be confidently wrong on some of them.
Pro tip
Do the yearly arithmetic once for a real client and the priority sorts itself out. A few hundred rupees of GST a month on bank charges, across every client with an active current account, is a number worth the ten minutes it takes to set the ledgers up properly.
Conclusion
The rule underneath all of this is short. Fees carry GST, interest does not, the statement shows you a gross figure for both, and the gross figure is not what belongs in your expense ledger.
Get the masters right once per company, split the entry into taxable value and input tax, work out the place of supply from the recipient's location rather than the branch, and reconcile the totals against 2B rather than chasing individual lines.
The recognition step is the part that takes real time, and it is the part worth automating. Greenote classifies every line in the statement and names the counterparty, so charges surface as charges before you start. See how the statement to Tally flow works, or why entries end up in Suspense when that classification is missing.
Start a free trial and run a real current account through it.
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