Impact of GST on Banking Industry, Issues in GST on Banking Sector: Banking sector plays a very crucial role in a macro economic and monetary policies of any country overall framework and the business dynamics of this sector largely differs from other sectors. The regulatory framework for this sector is very strong and leaves no room for any discrepancies. Unlike, other businesses where there are many un-organised ways of style of workings still prevail, same is not the case with this sector which is largely organised in nature. Therefore, any issues for this sector has to be closely looked at and timely resolved so to that larger economic interest of the nation is achieved.This article lay down various issues that a Banking sector may face due to advent of GST and the suggestions so as to amend the rules, wherever required to be address the negative impact of GST on the Banking sector. Various aspects discussed herewith would apply to all types of banks viz., Nationalised Banks, Private Banks, Public Banks, Co-operative Banks etc. However, the article does not lay discussion on Non-Banking Financial Companies (NBFC’s), Micro Finance companies, Credit Cooperative societies etc.
Impact of GST on Banking Industry, Issues in GST on Banking Sector
1) State-wise Registration requirement:
Accounts and Administration:As GST stands today, transactions between two branches of same bank is set to trigger a tax, which could prove to be cumbersome.
- GST would require restructuring of accounting, administration and control mechanism in the IT systems and processes of banks to be able to maintain financial records of each State separately.
- GST being levied on branch transactions could be cumbersome because of the enormous number of financial transactions being carried out.
Place of Supply of Goods and Services:
Taxability of Interest:
Reversal of Input Tax Credit on Capital Goods:Presently, as per Rule 6(3B) of CENVAT Credit Rules, 2004, an assessee in banking sector has to reverse 50% of the CENVAT Credit taken on monthly basis on inputs and input services. However, banks can take full credit on Capital goods unless the said capital goods are exclusively used for any exempted service.
Reversal of Input Tax credit over and above standard 50%:As per the provisions of the GST Act, option has been given to bankers to reverse 50% of the CENVAT credit instead of reversing based on the input service partly attributable to the taxable supply and exempted supplies. Similar provision is also in place under Service Tax law. However, it is noted that departmental notices are being issued demanding to reverse CENVAT credit of input, input services that are exclusively used for exempted services even though the option for reversal of credit at 50% is opted for.
Repossession of Assets of Defaulters:
Benefits to Banking industry:
- Bank will be able to set off their GST liabilities against credit received on purchase of goods.
- Under the existing CENVAT mechanism, banks are eligible to take partial credit of excise duty and service tax paid on procurement of qualifying goods and services which are used for provision of output service but under GST law bank will take input tax credit which would be used by bank for payment of output liability.
- Banks do not get input tax credit of State VAT paid on any goods procured by them. As all these indirect taxes will be subsumed in GST, banks will be able to take credit of GST paid on procurement of goods as well.
- GST Will help to reduce tax evasion. Under GST doing business will be easy. The increase in business will lead to additional demand of funds. Addition demand of funds will lead to increase in a number of transactions in the bank as the business and current scenarios ask to go for digital transaction.
- GST Scope
- GST Return
- GST Forms
- GST Rate
- GST Registration
- What is GST?
- GST Invoice Format
- GST Composition Scheme
- HSN Code
- GST Login
- GST Rules
- GST Status
- Track GST ARN
- Time of Supply