Apart from mutual fund exit load and credit card dues, GST has been introduced on a host of financial services, according to a CBIC FAQ. Mint takes a look at what this means
The central board of indirect taxes and customs (CBIC) this week issued a detailed FAQ clarifying queries on the applicability of the goods and services tax (GST) on the financial services sector. Mint takes a look at what this means.
Why is this important?
The government had formed 18 sectoral groups last year to look into issues faced by various sectors to ensure smooth implementation of GST. The FAQ on the financial services sector was the first to be released. It aims to remove ambiguities around the applicability of the tax on various transactions and consequently narrows the scope for future litigation. The FAQs also seek to lessen the compliance burden on financial institutions which already have to register in all states where they operate and file multiple returns.
What transactions will attract GST?
Interest charged on outstanding credit card dues, on finance lease and due to delays in certain types of loan instalment repayments will be taxable under GST. Others include interest or charges for delayed payments of brokerage amount or settlement obligations, exit load in the form of fees on mutual funds and services provided by banks to RBI . The FAQ also clarified that stockbroking services given to non-residents such as foreign portfolio investors will not count as exports and are, therefore, taxable.
What’s next on the anvil?
The industry is waiting for similar FAQs on other sectors such as telecom, IT, oil and gas, exports, e-commerce, infrastructure, media and pharmaceuticals.
What transactions will no longer be in GST’s ambit?
Free services provided by a bank to its customers will not attract GST, the government has clarified, providing a breather to financial institutions. The FAQ has also clarified that derivatives, securitization assets, future and forward contracts (with some riders) are not taxable under GST. Interest levied on most loans is also out of the GST net. Interest on debt instruments will also not attract GST.
Has the compliance burden been eased for institutions?
Banks and insurance firms do not have to ascertain the place of consumption of services available with them and can rely on the GST identification number provided by the customer. Banks can also issue a consolidated tax invoice to customers at the end of the month. Banks don’t have to declare third-party ATMs and business correspondents deployed by them as places of business.