Brace for costlier banking services under GST

All banking services such as ATM withdrawals, cheque book issuance, demand drafts, cash deposits will turn costlier from July 1 with the implementation of good and services tax (GST).

The service tax, currently at 15%, will go up to 18% under the new indirect tax regime.

Also, top bankers are meeting the GST Council tomorrow for further clarifications on the tax issues.

Arundhati Bhattacharya, chairman of State Bank of India (SBI), said, "For all our services, we have to put the cost of the service plus the service tax. Under the GST regime, this will get converted into the cost of the service plus the GST, which will go up from the existing service tax rate of 15% to 18%."

A senior tax official said, "Various exemptions like not taxing interest is already allowed. But there are issues on input tax credit that need to be looked into. The GST will be rolled out on July 1 and then, we will fine-tune depending on the difficulties."

But the transition to GST may not adversely impact business entities.

Rajeev Rishi, chairman of Indian Banks' Association (IBA), said, "The tax rate is going up from 15% to 18% and thus the cost of banking services is expected to increase marginally. However, it may not adversely impact business entities as they get 100% input credit."

But ideally, the government should have put out a sectoral exclusion list to prevent disputes, experts like Mahure say.

"These days banks also deal in commodities such as gold and silver wherein a concessional GST rate is expected to be applicable. Thus, banks need to be careful in paying GST with the appropriate applicable rate on different products," said Pritam Mahure, a Mumbai-based chartered accountant.

Another confusion that still exists is the place of supply of a certain service. If a bank's customer resides in Mumbai and uses an ATM in Shimla, the bank will have to figure out whether it needs to file interstate GST or central GST or a state GST because GST is imposed on the place of supply of goods.

With branches conducting several transactions and customers moving from one state to another, to determine the place of supply may not be easy.

However Rajeev Rishi, who is also the chairman and managing director of Central Bank of India, said, "Location of the customer's communication address will determine the applicable tax viz; CGST/SGST for intra state and IGST for interstate."

Mahur where there is a dispute over the place of supply of services, the taxpayer may get entangled in a legal dispute."

At present, the GST legislation says that if an assessee wrongly pays, say CGST and SGST on a belief that the transaction is intra-state instead of IGST, then they will have to pay correct taxes (i.e. IGST) again and claim a refund of wrongfully paid taxes.

"Ideally, instead of putting the onus on the taxpayer to determine whether the transaction is intra-state or inter-state, the GST law should provide for a simpler redressal mechanism," Mahure said.       

Moreover, with banks having branches across states, they will have to get registrations in every state, which will increase the levels of compliance. So from the current practice of filing just two returns annually, they may have to file at least 61 returns per year for every state they are present in, according to chartered accountants.

Banks like SBI will have to file 1,800 returns, while Central Bank of India will have to file 1,400 returns a year from the two or three returns they file now.

...& ANALYSIS

• Banks deal in commodities such as gold and silver wherein a concessional GST rate is likely
   
• Banks need to be careful in paying GST with the appropriate applicable rate on different products