Due to its complex nature, there is a lot of confusion about how Goods and Services Tax (GST) applies to the financial sector. Very few have had clarity on how personal finances are impacted by the new tax regime.
Finally, the government has issued detailed FAQs. The detailed clarifications on banking, insurance and capital markets seek to address some pertinent issues relating to the industry such as levy of tax on free services as well as provide clarity to individuals. Below are a few of the clarifications:
GST on exit load of mutual funds
Exit load in the form of a fee (whether or not as a fixed percentage of the investment) is liable to GST. Even if the exit load is in the form of units in the fund, it may be concluded that the consideration received in money was later converted to NAV units.
Loan of one bank being taken over by another bank?
GST will be chargeable on any transaction processing fees levied for such takeover of loans, but not on the interest component (as interest is exempted).
Additional interest charged in case of default in instalment payment
As per Section 15(2) of CGST Act, 2017, the value of supply includes, inter alia, interest for delayed payment of any consideration for any supply. Additional Interest charged for default in payment of instalment in respect of any supply, which is subject to GST, will be included in the value of such supply and therefore would be liable to GST.
Charges for late payment of dues on credit card outstanding
GST applies on these charges. The exemption from levy of GST on interest specifically excludes interest charged on outstanding credit card balances as per serial no. 27 of the table of notification No. 12/2017-Central Tax (Rate) dated 28th June, 2017, as amended.
According to the FAQs, automated tellers machines or ATMs will not constitute place of business and will not trigger GST registration, the government said. In case services are provided by multiple branches to a customer, the branch where the account is opened will pay GST and other branches will be deemed to provide services to the main branch. In case of import of gold, integrated GST will apply once, on import, and not again when it is appropriated by banks.
Insurance policies issued to Non-Resident Indians are liable to GST where payment is made from non-resident accounts in Indian rupees, according to the FAQs.
According to the FAQs, securitisation, future contracts, derivatives and forward contracts in commodities, unless entailing actual delivery of commodities, will however not be liable to this tax.