The clarification by the department
keeping free banking services like cheque book issuance and ATM withdrawals
outside the ambit of GST has put to rest the confusion prevailing over the
issue
Free services, like ATM withdrawals,
provided by banks to customers will not attract GST, but late payment charges
on outstanding credit card bills and purchase of insurance policies by NRIs will
attract the levy.
In a set of FAQs on applicability of
Goods and Services Tax (GST) on banking, insurance and stock brokers sectors,
the revenue department has clarified that transactions relating to securitization,
derivatives, future and forward contracts are exempt.
The clarification by the department
keeping free banking services like cheque book issuance and ATM withdrawals
outside the ambit of GST has put to rest the confusion prevailing over the
issue.
Last month, the Department of
Financial Services had approached the revenue department seeking exemption of
these transactions from GST after the banks received service tax notice for
free services offered to their clients.
Clarifying whether, services supplied
without consideration to a recipient other than 'related party' / 'distinct
person' taxable, the FAQ said Section 7 of the CGST Act, 2017 provides that
services supplied without consideration to related persons or distinct persons
only would qualify as 'supply'.
"Therefore, where the services
are supplied by a supplier without consideration to an unrelated recipient or a
person other than a related or distinct person, the same would not amount to
supply and not liable to GST," it said.
On the levy of GST on insurance
policies purchased by non-resident Indians (NRIs), it said the amounts from
Non-Resident External Accounts are paid in Indian Rupees and are not received
in convertible foreign exchange.
"Therefore, the conditions for
export of services as provided under section 2(6) of IGST Act, 2017 are not
satisfied. Life Insurance services in such cases would be treated as
inter-State supplies and subject to GST," it said.
On whether GST will be levied on the
exit-load of mutual funds, the department said 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," the FAQ said.
Besides, late payment of dues on
credit card outstanding as well as interest on a finance lease transaction are
taxable under GST.
The FAQ (frequently asked question)
explained finance lease as a method of borrowing against the asset. The
interest represents the time value of the money expended by the bank in
financing the asset.
"Transactions relating to securitization,
derivatives, future and forward contracts have been clarified to be exempt from
GST, which have been debated since introduction of GST. While few aspects such
as taxability of transactions between Indian and overseas offices of same bank
still need some more clarity, industry would welcome the government's
initiative”
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.
Article courtesy - Business Standard
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