Impacts & Opinions



Today Indian economy is considered as the fastest growing economies in the world. Contributing to its high growth are many critical sectors, amongst which ‘financial services sector’ is one of the most distinguished sectors ofIndian economy. The Indian Banking industry is currently worth Rs. 81 trillion (US $ 1.31trillion) roughly, the Contribution of the banking sector to GDP is about 7.7% of GDP.Banking sector has generated employment in the economy for about 1.5 million people.

Substantial increase in compliances

GST is a parallel tax regime where the States and the Center, tax the payer in one go. Hence, banks may need to obtain State-wise registration in every State where they have a branch. In case a bank has multiple branches in one State, only one registration is required for all the branches in that State.

However, most banks have a multi-state presence. State-wise registration will therefore lead to a substantial increase in compliance levels, especially because most banks have obtained a centralized registration under service tax. So, currently, a bank may be filing only two returns on an annual basis as a service tax assesse, but with GST, the banks are required to file 37 returns per year for every State they are present in.

Determining Place of Supply Could be Critical

As per section 9(13) of IGST act place of supply shall be determined in case of banking, stock broking and other financial services are as follows :

Location of recipient as per records of supplier (linked to recipient accounts)

Location not available : Supplier’s location

Inter-state supplies of goods or services (or both) between two branches of the same bank, located in two States, will also attract IGST. The GST charged will be available as credit to the receiving branch; however, tracking such transactions could prove to be a cumbersome task.

In cases where there is a dispute over the place of supply of services, the taxpayer may get entangled in legal disputes. Currently, the GST legislation provides that if an assessee wrongly pays, say CGST and SGST (on a belief that the transaction is intra-state), instead of IGST, then they will have to pay the correct taxes (i.e. IGST) again and claim a refund for wrongfully paid taxes.

Paying GST at Applicable Rate

With GST, services are expected to attract 18% GST. This rate is higher by 3% from the current service tax rate of 15%. This may make banking services such as issue of cheque books and demand drafts more expensive, particularly for retail customers.

Another point to note is that these days banks also deal in commodities such as gold / silver where a concessional GST rate is expected to be applicable. Therefore banks need to be careful in paying GST with the appropriate applicable rate on different products.

Assessment and Adjudication made bothersome

Assessment would be done by the respective state regulators under which the respective branch is registered. Now, every registered branch of banks and NBFCs must justify its position on chargeability in the respective state and reason for utilizing input tax credit in different states.

As under GST more than one adjudicating authority will be involved, each authority may hold different opinion on the same underlying issue. This contradiction in opinion will prolong the adjudication process. Currently, a tax payer is adjudged by a single adjudicating authority on an issue involved. Under GST different adjudicating authority may take different view on the same issue. Clearing up and dealing with the difference of opinion provided by different adjudicating authority would be difficult.

Actionable Claims

Actionable claims do not constitute as a service under Service Tax, no tax is payable under current regime. Under GST actionable claims are now included in the definition of supply of goods. Services provided from bills discounted to securitization will now be taxed as an effect B2C and B2B majorly.