The Goods and Services Tax (GST) implemented in July 2017 has not caused much of an upheaval in the financial services sector. One reason is the single tax slab of 18% across all services that came under the ambit of GST. Another reason is the buoyant equity markets over the last year that helped minimise the impact of the higher tax to some extent.

However, it has not been entirely a smooth sailing for the financial service providers. Compliance continues to be an issue as firms struggle to integrate their systems with the government’s GST network. Firms are still working on registering service providers like sub-brokers and matching of invoices in order to get input tax credit. These will hopefully improve with upgradation in technology and as more process gets automated, said experts.

The increase in tax rate from 15% service tax to 18% GST rate had a direct impact on insurance premiums, said Gaurav Seth, CFO, Canara HSBC OBC Life Insurance.

Further, tax compliance has been extremely challenging with a multi-fold increase in the number of tax returns as well as dealing with multiple tax agencies. This coupled with teething issues with technology seem to now be settling down.

“While customers have to pay more now to buy insurance, the industry continues to request the government to reconsider lowering the GST rates on insurance since any reduction will result in improvement in long-term financial savings,’’ he said.

According to Joydeep Roy, insurance leader at PwC India, insurance companies did not see a major impact since it is not possible to change the pricing unless there is a new product.

But one needs to see if two or three years down the line companies are able to reduce the premium based on the credit they will receive.

“In the service tax scenario, companies were getting credit only for the services they were enjoying, such as an agency. Assuming they had a larger share of goods for which they were not getting credit. As under GST, even goods will get credit, so technically they should get more credit. If that is substantial they can come up with products that are cheaper. But it would be marginal as insurance companies are not capex heavy but service heavy,’’ he said.

Since 2017-18 was a good year for equities, investors’ returns were protected to some extent, said Shalibhadra Shah, CFO, Motilal Oswal. “For investors, the burden has increased and overall returns have fallen. But if markets decline then the tax rate will come as a burden for investors. So, if the rate is reduced investors will benefit by a higher take home,’’ he said. Compliance is a challenge, especially, for firms that have multiple branches across states. Earlier, firms had to file service tax twice a year, now they have to file returns thrice a month and in all the states they are present. Full automation of processes before the deadline and integration with GSTN platform are other issues.

SERVICES COVERED UNDER GST
1 Services provided by banking, insurance, mutual fund houses, stock broking firms

2 All fees and penalties charged by financial institutions such as exit loads for mutual funds, additional interest charged on loan default

3 Interest paid on credit card dues

SERVICES EXEMPTED
1 Free services provided by banks such as free ATM withdrawals, chequebooks, etc. Interest earned on deposits or interest paid for loans and advances

2 Transactions related to derivatives, future and forward contracts and securitisation

3 Services rendered by Employees’State Insurance Corporation and Employees Provident Fund Organisation to the people governed under their respective Acts

4 Services of life insurance business provided under (i) Aam Aadmi Bima Yojana; (ii) Janashree Bima Yojana; (iii) micro life insurance products approved by IRDAI with upper cap of Rs 50,000 on the life cover amount; (iv) Pradhan Mantri Vaya Vandan Yojana; (v) Pradhan Mantri Jeevan JyotiBimaYojana; (vi) Varishtha Pension BimaYojana; and (vii) Pradhan Mantri Jan Dhan Yojana.