Analysis of Entry (n): Specified financial services in negative list :

Following services are included in this entry:-

(i) Services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount;

(ii) Services by way of inter se sale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange or amongst banks and such dealers.

Services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.

Any such service wherein moneys due are allowed to be used or retained on payment of interest or on a discount are covered here. It is important to note that the words “deposits, loans or advances‟ have to be taken in the generic sense.

They would cover any facility by which an amount of money is lent or allowed to be used or retained on payment of what is commonly called the time value of money which could be in the form of an interest or a discount.

Examples of services covered in this entry:

•  Loan or overdraft facility or a credit limit facility provided in consideration for payment of interest.
•  Mortgages or loans with a collateral security to the extent that the consideration for advancing such loans or advances are represented by way of interest.
•  Fixed deposits or saving deposits or any other such deposits in a bank or a financial institution for which return is received by way of interest.
•  Corporate deposits to the extent that the consideration for advancing such loans or advances are represented by way of interest or discount.

Note: This entry would not cover investments by way of equity or any other manner where the investor is entitled to a share of profit.

Whether the following financial transactions are covered in this negative list entry?

S.No.	If	Then
1	any service charges or administrative charges or entry charges are recovered in addition to interest on a loan, advance or a deposit	such charges or amounts collected over and above the interest or discount amounts would not be part of this negative entry and thus would represent taxable consideration
2	there is invoice discounting or cheque discounting or any other similar form of discounting	such discounting is covered only to the extent consideration is represented by way of discount as such discounting is nothing else but a manner of extending a credit facility or a loan.
3	services are provided by banks or authorized dealers of foreign exchange by way of sale of foreign exchange to general public	such services would not be covered in this entry because this entry only covers sale and purchase of foreign exchange between banks or authorized dealers of foreign exchange or between banks and such dealers.
4	transactions are entered into by banks in instruments like repos and reverse repos*	they are more appropriately excluded from the definition of service itself being the sale and purchase of securities, which are goods.
5	there is a subscription to or trading in Commercial Paper (CP) or Certificates of Deposit (CD)**	since these are instruments for lending or borrowing money where in consideration is represented by way of a discount, issue or subscription to CPs or CDs, they would be covered in the negative list entry relating to ‘serivces by way of extending deposits, loans or advances in so far as consideration is represented by way of interest or discount‘. It may also be borne in mind that promissory note is included in the definition of money in the Act as given in clause (33) of section 65B.

*Repos and reverse repos are financial instruments of short term call money market that are normally used by banks to borrow from or lend money to RBI. The margins, called the repo rate or reverse repo rate in such transactions are nothing but interest charged for lending or borrowing of money.

**Commercial Paper („CP‟) and Certificate of Deposit („CD‟) are understood as unsecured money market instruments which may be issued in the form of a promissory note or in a dematerialized form through any of the depositories approved by and registered with SEBI. CPs are normally issued by highly rated companies, primary dealers and financial institutions at a discount to the face value. CDs can be issued by Scheduled Commercial Banks (excluding RRBs and Local Area Banks) and All – India Financial Institutions (FIs) permitted by RBI.