Government clarifies issues relating to GST in financial services sector
Even after eleven months of implementation, there was ambiguity over the applicability of GST in the financial services sector, including on free services such as ATM transactions and issuance of cheque books. issues. There was also lack of clarity on subject such as registration of ATMs; disclosure of certain amounts in GST returns; input tax credit on services other than banking provided by banks (e.g. bullion business). To clear the air, the Central Board of Indirect taxes and Customs has come up with a detailed FAQ. Following are some of the key issues clarified in the FAQ:
For Banking Sector:
- Sale of repossessed asset falls within the scope of supply and chargeable to GST.
- While GST will be chargeable on late payment of dues on credit card outstanding, it will not be chargeable on issuance of free cheque.
- As debt instruments such as debentures, bonds etc. are in the nature of loan, interest thereon will be exempt from GST.
- Banks are not required to provide the details of ATMs while applying for registrationof ATMs, Business Correspondents (BC), Customer Service Points (CSP) or third party warehouses as these on their own do not constitute a place of business and are not required to be declared as places of business by the bank in their GST registration.
- Services provided by banks to RBI are taxable.
- Once a transaction has been reported in GSTR-1 as B2C due to non-availability of customer’s GSTIN, even if the customer reverts with the GSTIN, the same cannot be amended to B2B.
- Where a Bank has separate registration for separate business verticals, say for bullion business, the provisions regarding reversal of 50% of the amount of input tax credit (ITC) shall not apply to such vertical, if the bank exercises the option.
- Derivatives and Forward Contracts
- Derivatives and future contracts (in the nature of financial derivatives) being covered in the definition of Securities, are not liable to GST. However, if some service charges, documentation fees or broking charges are charged, the same would be liable to GST.
- If futures contracts have a delivery option, and if the settlement of contract takes place by the way of actual delivery of underlying commodity or currency, then such contract would be treated as a normal supply of goods liable to GST.
- In case of forward contracts, if the settlement takes place by way of net settlement of differential of the forward rate over the prevailing market rate on the settlement date, then such contracts will not be taxable under GST. However, where the settlement takes place by way of actual delivery of underlying commodity/currency, such forward contracts would be treated as normal supply of goods liable to GST.
- For bad debts on account of deficiency in supply of services, or tax charged being greater than actual tax liability, or goods returned, GST paid on the same is refundable subject to fulfilment of the prescribed conditions. However, GST paid on bad debts, as used in the trade parlance, cannot be adjusted.
For Stock Brokers:
- Brokerage earned in stock broking service will be liable to GST, since the stock brokers are engaged in the business of providing stock broking services.
- Funds are provided by clients to the stock brokers in advance of the potential orders/ trades that would lead to margin/ settlement obligations. All such advances will fall in the category of deposit unless the stock broker applies such deposit as consideration for the said supply in his books of accounts.
- Any interest/ delayed payment charges charged for delay in payment of brokerage amount/settlement obligations/margin trading facility shall be leviable to GST.
- Exit load on mutual find in the form of a fee is liable to GST (even if the exit load is in the form of units in the fund).
For Insurance Sector:
- Service received from insurance agent by the insurance company will be liable for GST under Reverse charge and in such cases, the insurance company may issue agent-wise consolidated invoice at the end of the month for the supply of services received during the month.
- The amounts paid as insurance premium from the NRE accounts are paid in Indian Rupees and are not received in convertible foreign exchange and hence not to be considered as export.
It is expected that these clarifications will remove some of the ambiguities that were creating confusion in the minds of the financial services companies and help them breathe easy.
For further queries or clarifications pertaining to compliance under GST, please feel free to contact us at email@example.com
- C.A. Sourav Choudhary (Senior Manager-Finance & Accounts)
- C.A. Pankaj Choudhary (Senior Associate, Legal Operations)
- C.A. Priyanka Agarwal (Senior Associate, Legal Operations)