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 implementedon July-2017, replacing a multitude of central as well as state wisetaxes.

Under previous system direct and indirect taxes levied on goods andservices fell between 18%-40%. Which have now been restructured tobe 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 sharedby 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 thanthe manufacturing or trading sector

• Among the services provided by banks and NBFC’s financial servicessuch as fund based, fee based and insurance services will see a majorshift from current scenario.

• Transaction fees in financial services such as credit card payments,fund transfer, ATM transactions, processing fees on loans etcis increased to 18% tax bracket in the new GST regime



• The hike in the tax rate means, individuals will have to pay Rs 3 morefor every Rs 100 paid as charges/fees for banking transactions.

• The GST will be on Total Expense Ratio (TER) of the mutual fund andwill 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 insuranceexcluding service tax, their expenses will increase by 3%, i.e., Rs 1500



• Mutual fund distributors earning up to Rs 20 lakh will remainexempted from GST.

• Bank branches provide services to each other, which will be taxableunder GST (they can later claim input tax credit). But this will increasethe paperwork and the operating cost also


NEFT Fees BeforeGST

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 ServiceTax laws for all its branches. Branches of banks in multiple states &Union Territories (UT) will now require separate registration underGST.

• Under GST, all records have to be maintained for each stateseparately. This will be cumbersome and challenging at the sametime. In case a bank has multiple branches in one State, only oneregistration is required for all the branches in that State.


• Place of Supply

GST is a place of supply based tax regime. Bank branches usuallyconduct transactions, both within and outside states thereforedetermining the place of supply will not be easy. The place of supply ofthe bank, they need to decide whether the payment isagainst 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) betweentwo branches of the same bank, located in two States, will also attractIGST.


• Taxability of Interest

• In the current tax regime, interest is not taxed. Also, governmentsacross the world do not impose GST on interest. If interest is notexpected to attract GST, it will have implications on Input TaxCredit claimed by banks.

• Section 25 requires uploading of invoices on GSTN by 10th of nextmonth meaning whenever a person wants to avail input tax crediteach and every document is to be uploaded ad it’s a fact that banksdo 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. Consumerwill be charged 3% more under GST. There is a lot of confusion abouthow banking sector should charge their customers. Intra-state andinter-state transactions will also become a cumbersome task for thebank.


References

• DR Rohit Bansal

• Taxman

• Legal rasta.com

• Cleartax.com


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