Free services provided by banks, such as withdrawals from ATMs and issuance of chequebooks to customers, will not be taxed under the goods and services tax (GST), the government clarified on Sunday, providing relief to financial institutions as well as consumers.
The government, however, said that interest charged on outstanding credit card dues, finance lease and exit fees paid by mutual fund investors will be taxable under GST. Since interest levied on loans are not taxed, any additional interest for delayed payment has also been kept out of GST.
These clarifications were made based on recommendations by one of the groups set up to address sector-specific concerns under the indirect tax regime that came into effect on 1 July.
Free services provided by banks have become a major litigation issue with tax officials issuing notices to banks demanding tax for services provided free of cost before the implementation of GST.
Sunday’s statement also provides clarity on cases where customers are serviced from multiple branches. In such a case, the location of the supplier of services will be the customer’s home branch. Banks and insurers also do not have to ascertain the place of consumption of the services they provide and can rely on the client’s GST identification number. Banks can also issue a consolidated tax invoice to clients at the end of a month, the government clarified.
Banks also need not register in states where they only have ATMs and no branches. These measures will reduce the compliance burden.
With the demand for centralized registration yet to be met, banks have to obtain registration in all states they operate and consequently file multiple returns. Pratik Jain, leader, indirect tax, PwC India, said it addresses most of the issues raised by the financial services industry.
“Transactions relating to securitisation, derivatives, future and forward contracts have been clarified to be exempt from GST, which have been debated since introduction of GST. Clarifications around services provided by multiple branches and to multiple locations of customers would provide much-needed certainty to the industry and reduce possibility of litigation,” he said in a note.
On stock broking services, the clarification said that interest or charges for delayed payment of brokerage amount or settlement obligations shall be taxable under GST. The government also clarified that stock broking services given to non-residents like foreign portfolio investors will not count as exports and therefore are taxable. Exit load in the form of a fee on mutual funds is also taxable.