IMPACT OF GST ON THE BANKING SECTOR
The introduction of GST in India is a revolutionary shift from the existing tax regime. In Goods and Sales Tax (GST) regime, most of the indirect taxes such as central excise duty, service tax, Value Added Tax, Sales tax and entry tax would get subsumed. The banking sector is one of the largest services sectors in India. The implementation of the Goods & Services Tax (GST) will likely prove to be a challenge for the sector on two counts –
- First, due to the higher GST rates compared to the current service tax rate and
- Second, due to the vast geographical reach of most banks.
Banks have always been a huge pillar of the Indian economy and taxpayers are literally banking on them for GST payments / financial needs. Given this, the GST Council shall provide clarity on the imposition of taxes for the banking sector as well as shed light on several open ended issues that are plaguing them currently.
| GROUNDS | BEFORE GST | AFTER GST |
| Registration | Banks follow the Zonal or Regional structure for every large State. | Banks having branches in multiple States and Union Territories (UTs) shall register in each such State or Union Territory. |
| Accounts and Administration | Simple. | Cumbersome as transactions between two branches of same bank is set to trigger a tax. |
| Place of Supply of Goods and Services | A Customer having an account in Raipur may do the transaction from Chennai and can transfer money to persons from Delhi having account in Chennai. | Supply identification will be required for taxation purpose under GST regime. |
| Levy of Service Tax | The power to levy and collect Service Tax on all services is with the Centre. | With the introduction of GST, the States would also be empowered to levy GST on services. |
| Services | Banks provide different types of services to customers like Credit Card, Debit Card, Cheque Clearance, Internet banking, NEFT, RTGS, IMPS, Funds Transfer, Demand Account, Demand Draft, Wealth Management services, Savings account, Personal loan, home loans, etc. while Bank head offices provide some other services. | All these will become taxable under the ambit of Goods and Sales Tax. |
| Repossession of Assets of Defaulters | When a bank repossesses assets from a defaulter of loan and sells the same, Bank pays the VAT, as a dealer’ in terms of State VAT laws. | Such treatment is liable to change under GST. |
| Invoicing | N/A | Requires uploading of invoices on GSTN (Goods and Services Tax Network) by 10th of every month. |