The Central Board of Excise and Customs is understood to have asked banks to pay a service tax of 8 per cent with effect from April 1 this year on the commission, brokerages and handling charges levied by them for managing government business.

CBEC has also directed banks to pay service tax with retrospective effect from July 2001 at the rate of 5 per cent on such income.

At present, data is being collected through all agency banks to arrive at the taxable figure.

According to agency banking sources for the government retail business, the circular was issued in 2001 but no demand notice was served on banks since then. Two months back most of the banks were served with summon notices for not paying the service taxes.

Earlier, the retail business of collecting taxes and distribution of bonds on behalf of the government used to be done by the Reserve Bank of India.

However, with the central banks' decision to get away from the retail business, few private banks along with the public sector banks have been given the business.

These banks receive commission at the rate of one-16th of one per cent of entire tax collections made as well as one percent brokerage on the same amount. As far as  mobilisation on the RBI bonds are concerned, the banks get paid Rs 25 for new account and Rs 20 per year per existing account.

The banks have decided to represent to the CBEC for a possible waiver of the amount to be paid with retrospective effect, said a banking source. Some time back, the CBEC had directed the brokers selling unit of mutual funds to pay service tax of 8 per cent with effect from July 2003.