GST-Impact on Banking sector

IMPACT OF GST ON BANKING SECTOR
Presented By :
CHITRANSHU SHUKLA
VIVEK KR.
GST and its impact on Banking Sector (Corporate Taxation)06-12-2017

INTRODUCTION
Goods and Services tax is the biggest indirect tax reform implemented
on July-2017, replacing a multitude of central as well as state wise
taxes.
Under previous system direct and indirect taxes levied on goods and
services fell between 18%-40%. Which have now been restructured to
be between 5%-28% for around 1200 goods and services.

Types of GST
• India has chosen Canadian model of dual-GST.
• CGST :-> to be collected by central government(intra-state)
• SGST:-> to be collected by state government(intra-state)
• IGST:-> collected by central government then revenue to be shared
by state and central government based on destination of goods.

INTRODUCTION TO INDIAN BANKING SETOR
• Indian banking system consists of 27 public sector banks 26 private
sector banks 46 foreign banks , 56 rural banks and 1574 co-operative
banks
• Public sector banks control more than 70% of market share.
• Rising disposable incomes has led to high credit- take off aided by
strong economic growth as per estimates during FY06-17 the total
supply of money increased at a CAGR of 9.92 reaching 1.8trillion USD

• It is expected that services sector will have major impact of GST than
the manufacturing or trading sector
• Among the services provided by banks and NBFC’s financial services
such as fund based, fee based and insurance services will see a major
shift from current scenario.
• Transaction fees in financial services such as credit card payments,
fund transfer, ATM transactions, processing fees on loans etc
is increased to 18% tax bracket in the new GST regime

• The hike in the tax rate means, individuals will have to pay Rs 3 more
for every Rs 100 paid as charges/fees for banking transactions.
• The GST will be on Total Expense Ratio (TER) of the mutual fund and
will go up by 3%.
• Policyholders have to pay higher premiums on their insurance.
Assuming, a family spends a total of Rs 50,000 p.a. on insurance
excluding service tax, their expenses will increase by 3%, i.e., Rs 1500

• Mutual fund distributors earning up to Rs 20 lakh will remain
exempted from GST.
• Bank branches provide services to each other, which will be taxable
under GST (they can later claim input tax credit). But this will increase
the paperwork and the operating cost also

NEFT Fees Before
GST
Fees After GST Difference
Less than 10000 Rs 2.50 Rs 2.80 30 paisa
Above 10000 Rs 5.75 Rs 6.25 50 paisa
Less than 2lakh Rs 17.18 Rs 17.90 72 paisa
2lakh to 5lakh Rs 28.6 Rs 29.5 Rs 1.2

IMPS Fees Before GST Fees after GST Difference
Less than 1lakh Rs 5.75 Rs 6.25 50 Paisa
1lakh to 2lakh Rs 17.18 Rs 17.90 72 Paisa
2lakh to 5lakh Rs 28.6 Rs 29.5 Rs 1.2

RTGS Fees before GST Fees after GST Difference
2Lakh to 5Lakh Rs 28.6 Rs 29.5 Rs 1.2
5lakh to 10lakh Rs 57.25 Rs 59 Rs 1.75

CHALLENGES-state wise registration
• Currently, all banks have centralized registrations under the Service
Tax laws for all its branches. Branches of banks in multiple states &
Union Territories (UT) will now require separate registration under
GST.
• Under GST, all records have to be maintained for each state
separately. This will be cumbersome and challenging at the same
time. In case a bank has multiple branches in one State, only one
registration is required for all the branches in that State.

• Place of Supply
GST is a place of supply based tax regime. Bank branches usually
conduct transactions, both within and outside states therefore
determining the place of supply will not be easy. The place of supply of
the bank, they need to decide whether the payment is
against CGST,SGST and IGST based on the type of transaction (intra-
state or inter-state).
Example:-> inter-state supplies of goods or services (or both) between
two branches of the same bank, located in two States, will also attract
IGST.

• Taxability of Interest
• In the current tax regime, interest is not taxed. Also, governments
across the world do not impose GST on interest. If interest is not
expected to attract GST, it will have implications on Input Tax
Credit claimed by banks.
• Section 25 requires uploading of invoices on GSTN by 10th of next
month meaning whenever a person wants to avail input tax credit
each and every document is to be uploaded ad it’s a fact that banks
do not issue commercial invoices for every service rendered.

Benefits:
• Banks will be able to set off their GST liabilities against credit received
on purchase of goods.
• Under existing CENVAT mechanism banks are able to take partial
credit of excise duty and service tax paid on procurement of
qualifying goods and services which are used for provision of output
service but under GST law bank will take input tax credit .
• GST will help reducing tax invasion. Under GST doing business would
be easy this would in turn generate additional fund demands leading
to increase in transactions of banks as business and current scenarios
ask o go for digital transaction.

Conclusion
• Implementation of GST will create a fuss for banking sector. Consumer
will be charged 3% more under GST. There is a lot of confusion about
how banking sector should charge their customers. Intra-state and
inter-state transactions will also become a cumbersome task for the
bank.

References
• DR Rohit Bansal
• Taxman
• Legal rasta.com
• Cleartax.com

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GST-Impact on Banking sector

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