By Prarthana Mitra
The government announced that free banking services will not be taxed, categorically declaring ATM withdrawals and cheque book issuance exempt from additional Goods and Services Tax (GST), in a statement issued on Sunday.
Although basic services will no longer be taxed under GST, outstanding credit card dues will be taxable, as will interest on finance leases and exit fees paid by mutual fund investors. Additionally, there is tax exemption on additional interest for late loan payments and interest levied on loans, although, any charges for any delay in paying brokerage amount or settlement obligations will still be taxed under GST.
The government also clarified that such stockbroking services for non-resident Indians and foreign portfolio investors are not to be considered as exports and will have to be taxed. Exit load in the form of a fee on mutual funds is also taxable.
All the clarifications were made based on recommendations by a central committee on indirect tax-related issues and are bound to bring considerable relief to both customers and financial institutions.
Why you should care
The clarifications come at a time when free services provided by banks have become a major litigation issue. Tax officials have in the recent past presented banks with unscrupulous notices, demanding tax for services normally provided free of cost before the implementation of GST.
Sundays statement, therefore, provides clarity on cases where customers engage in transactions from multiple branches, clarifying that the location of the service provider is to be the account holder’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 clients GST identification number. They also made a recommendation for the banks to issue a consolidated tax invoice at the end of each month, for purposes of documentation and the customer’s own perusal.
Banks also received the green signal to operate ATM machines in states without registration, in order to reduce the compliance burden and minimize the need to file multiple returns. Pratik Jain, who leads the indirect tax department at PwC India told Mint that it addresses most of the issues raised by the financial services industry today.
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, said Jain.
Prarthana Mitra is a staff writer at Qrius