Introduction of goods and services tax (GST) is now a certainty, though the timing is currently being debated. Given that it is a transaction tax it would impact each industry or sector in its own way, as every sector will have some unique features in its business model.

As regards the financial services sector, one of the key impact areas would be the treatment of fund-based activities. Currently, all fee-based activities are generally liable to service tax. They include various types of charges or transaction fees levied on a per unit or lump-sum basis.

However, income from fund-based activities such as interest, investment and asset financing, proprietor trading etc are largely out of the tax net (except for 10% of the interest earned in a financial leasing transaction). It is expected that GST would be an all-encompassing levy and tax may apply on all services, with a specific list of exclusions.

Also, if one looks at some international precedents on what is the definition of services, say the EU VAT laws, the term is defined to include all transactions that are not regarded as supply of goods. Thus, it would be important for fund-based activities to be a part of the list of exclusions to have the effect of continuing the current no-tax situation.

Another change expected for service providers in this sector would be the introduction of Place of Supply Rules. These rules are expected to define the taxing jurisdiction of a particular service. One of the features of the dual-GST proposed by the empowered committee is that both the Centre and state governments would levy tax on supply of services.

Given this, Place of Supply Rules would help determine the appropriate state to levy GST on a particular service. Another outcome of the dual structure is the requirement to maintain separate credit pools for CGST and SGST. The current input credit mechanism would be replaced by a new system. It is expected that the definition of input would get wider as GST merges several (present) taxes on goods and services.

This would mean that the entire case bank on interpretation of current regulations would have to be re-built. With IGST also proposed to be treated as a separate pool, with protocol as to when can credits be used across pools, taxpayer would have to deal with three different streams of credit.