GST IMPACT on Banks & NBFC – Efiling World
Goods and Service Tax introduced in July’17 with a slogan of One-Tax-One-Nation. Although, in various aspects GST centralized the system and remove the hardship and complexity of previous laws, but if we will analyses some sectors like banks & NBFC. It Gone through with rigorous changes and hardship due to introduction of GST. Banking sector plays a very important role in any economy and the business dynamics of this sector is largely different from any other sector. The article lays down various issues faced by banking sector after implementation of GST. Various aspects discussed herewith would apply to all types of banks viz., Nationalized Banks, Private Banks, Public Banks, Co-operative Banks etc.
State Wise Registration Requirement:
Earlier all banks had centralised registration under Service Tax laws for all its branches. But now all banks having branches in multiple states and Union Territories (UT) are required to obtain registrations in all such states and Union Territories.
Such a requirement of GST has created huge compliance burden on the banks. Further, high co-ordination and control is also required between banks for tax matters. Moreover, state wise multiple return, multiple audits, multiple assessment has also been created highly cumbersome and complex environment.
Inter-state Supply of Goods & Services between two branches of the same bank:
Earlier in the Service tax regime, Supply between two branches of the bank, within state or outside the state was an exempted supply.
But in the current scenario, inter -state supply of goods & Services (Both) made between two branches, located in the different states, will attract IGST.
Place of Supply in Case of banking services:
Account Linked Financial Services: Place of supply will be the location of service recipient in the records of service provider. But in some cases banks would have multiple addresses of the same customer in its records, this is possible as in case of a banking sector a customer would add multiple accounts within the same customer id and in which case only one address of the customer under whose address that customer id is registered would be reflected as the address on records.
However, it is possible that the transaction is undertaken with the account holder within the same customer id but having a branch in different state. In such a situation, if strictly banks pay GST to the state based on the “address on record” then it may end up paying GST in a wrong state.
Therefore, banks have to record the address of each account holders within the same customer id and GST needs to be charged on that account holder and accordingly tax also must be paid to that respective state government of the account holder and not the single address captured for the entire customer id.
E.g. it is quite possible that bank issues ‘bank guarantee’ to be submitted to a local authority by a company. Now, if as per the bank’s records, address of the customer [as its HO] is mentioned/ maintained where such address is in the other state, wrong GST may get levied.
Non- Account Linked Financial Services: Place of supply will be the location of service provider in case location of service recipient is not on the records of the supplier.
Reversal of Input Tax Credit on Capital Goods
Earlier in the service tax regime, an assessee in banking sector has to reverse 50% CENVAT credit taken on monthly basis on input or input service. However, banks could have taken 100% CENVAT credit on Capital Goods, until it was not used exclusively for providing any Exempted services.
However, in the present regime of GST, law allows banks to avail 50% credit on input, input services and capital goods.
It is pertinent to note that the provision of reversal of 50% credit on Capital Goods is having an negative impact on the banks and NBFC’s. Various capital goods like office furniture, Air Conditioner, Computers, Printers, Cash counting Machines, Equipment are of high procurement cost for any branch of bank. Simultaneously, most of the capital goods are used for providing common services. Therefore, ITC of only 50% is available on such Capital Goods.
Assessment and Adjudication made bothersome
The assessment would be done by the respective state regulators under which the respective branch is registered. Now, every registered branch of banks and NBFC’s must justify its position on charge ability 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 a different opinion on the same underlying issue. This contradiction in opinion will prolong the adjudication process. Currently, a taxpayer is adjudged by a single adjudicating authority on an issue involved. Under GST different adjudicating authority may take a different view on the same issue. Clearing up and dealing with the difference of opinion provided by the different adjudicating authority would be difficult.
Some Noted Points:
Issue1- Will banks qualify as a taxable person for sale of hypothecated/ pledged goods (Auction)?
Yes in case of sale of hypothecated/ pledged goods (Auction) GST will be applicable. As GST is payable if there is any supply of goods or services even by banks.
Issue 2- What will be the taxability of the event where a banking company or a financial Institution or a non-banking financial company receives some services by a recovery agent.
As per the notification No., 13/2017- Central Tax (Rate), where the services received by the above mentioned persons from a recovery agent, GST will be paid by the service recipient i.e. by bank under reverse charge mechanism.
Issue 3- What will be the taxability of the event, where services supplied by Individual Direct Selling Agent (DSA’s) to banking company or a non- banking financial company in the taxable territory?
As per the notification no. 15/2018- Central Tax ( Rate), where the services supplied by the Individual Direct Selling Agent (Other than body corporate, partnership or Limited Liability firm to a bank or a non- banking financial company in the taxable territory, GST will be paid by the service recipient i.e. bank under Reverse Charge Mechanism.
Issue 4- What will be the taxability of the event, where the services are supplied by the member of Overseeing Committee to Reserve Bank of India?
As per the notification No. 33/2017- Central Tax (Rate), this case will be covered by Reverse Charge Mechanism (RCM) , hence GST will be paid by RBI.
Issue 5- What will the taxability of the event, where service provided by business facilitator (BF) to a banking company?
This case will be covered under Reverse Charge Mechanism (RCM), hence GST will be paid by the banking company.