GST on banking service in India-Taxable or Exempt
Do you know that you are paying GST on the banking services which you are enjoying? In today’s era almost every goods and services are covered under GST Act. So there should not be any question like “is banking industry also covered under the GST Act?”
A large number of services provided by the banks are covered under the GST and are taxable. Which services of bank are taxable or which are exempt under the GST? Can a person claim Input tax credit (ITC) for the banking services? What type of invoice bank will issue?
This article contains all the answers of above questions. Lets first go through the services provided by the bank which are as follows-
- Unified Payments Interface (UPI) –
According to Cashlessindia.gov.in, a government-run website for educating people about digital transactions, payments using the UPI system are free of charge. Therefore, question of levy of GST on it does not arise.
- Buying and selling of Securities and foreign exchanges–
Selling or buying of foreign currency between banks or authorized foreign exchange dealers or between banks and such dealers are exempt.
- Payment of telephone bills, insurance premium, etc —
Generally Banks charge fee for giving services related to standing instructions. Standing Instruction Charges collected by bank for telephone bills, insurance premium, etc are taxable.
- Issue of Credit and Debit cards –
Credit card’s interest is taxable and processing fees for issuing the same are also taxable.
- Mobile wallets –
There are no charges while making payments or adding cash into wallets.
- Interest / Discounting on loans and advances–
Interest / Discounting on extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount is exempt.
In case of banks, where the bank (the supplier) and the recipient is based in India, place of supply will be the recipient’s address registered with the bank in this situation. If the recipient’s address does not exist in bank’s record, place of supply will be the location of bank.
However, if the bank is in India and the recipient of services is located outside India, place of supply would be the location of the service provider i.e. banking company.
The problem arises when there are several transactions that take place through ATM, credit cards or perhaps via bank guarantees from different locations.
In these cases following would be the place of supply –
(i) The place of registration of the recipient and when the supply is received by another recipient but under one registered establishment, that registered establishment shall be considered as the place of supply.
(ii) Where many transactions take place within the branches or other concern, then the establishment which has major concern shall be considered as place of supply in this case.
(iii) If no information is available as specified in points (i) & (ii), the residence address of the recipient shall be considered as the place of supply.
Now, when you are clear with place of supply you must be thinking how to determine time of supply? Don’t worry solution is here.
Time of Supply of banking services
In case of forward charge mechanism-
Earlier of the following-
- Date of issue of invoice or the last by which the invoice was to be issued.
- Date on which payment was received with respect to supply.
In case of reverse charge mechanism-
Earlier of the following-
- Date following the immediate 60 days from the date invoice was issued.
- Date on which payment was made with respect to the supply.
Input Tax Credit of banking services
Under GST, tax charged on any expense incurred in the course or furtherance of business is allowed as an input tax credit. Section 17(5) of the CGST Act 2017, provides a list of blocked credit where ITC is not available, even if such expenses are related to business.
Bank charges are not mentioned in that blocked credit list. Therefore, if bank charges are exclusively for business-related, input tax credit may be claimed, subject to other conditions. You have to update your GSTIN details with Bank. As with the help of it, Bank may report these transactions in its GSTR-1 which reflects in GSTR 2a of recipient.
Tax Invoice of banking services
In accordance with the provisions contained in the first paragraph of Rule 47 of the CGST Rules, 2017, a banking company or a financial institution, including an NBFC, may issue invoices within 45 days of the date of supply of service. In addition, sub-rule (2) of Rule 54 of the CGST Rules,2017 provides that such entities can issue any other document instead of the tax invoice. These entities may issue a consolidated statement / invoice to the customer at the end of the month, with details of all charges levied during that month and GST payable on it.
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The author of above article is Sneha Bhalotia.