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GST on banking sector

Comprehensive list of taxable banking services

(i) Services provided to Reserve Bank of India

(ii) Processing fees on loans

(iii) Documentation charges

(iv) Ledger folio charges

(v) Demand draft charges

(vi) Issuance of bank statement charges

(vii) Stop payment charges

(viii) Standing instruction charges

(ix) Inspection charges

(x) Bank guarantee commission charges

(xi) Issuance of letter of credit

(xii) Credit card services

(xiii) Intermediary services

(xiv) Interest on Gold loan

(xv) Processing fees charged on loan takeover transactions

(xvi) Sale of repossessed assets

(xvii) Charges on cheque bouncing (Ruling by AAR, Maharashtra)

Relevant exemptions available to banks under GST

Following services provided by the banks are exempted from GST

  • Services by the Reserve Bank of India
  • Services by way of-

(i) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services);

(ii) inter se sale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange or amongst banks and such dealers.

  • Services provided by a banking company to Basic Saving Bank Deposit (BSBD) account holders under Pradhan Mantri Jan Dhan Yojana (PMJDY).
  • Services by an acquiring bank, to any person in relation to settlement of an amount upto ` 2,000 in a single transaction transacted through credit card, debit card, charge card or other payment card service.
  • Services supplied by Central Government, State Government, Union territory to their undertakings or Public Sector Undertakings (PSUs) by way of guaranteeing the loans taken by such undertakings or PSUs from the banking companies and financial institutions.
  • Services by way of collection of contribution under the Atal Pension Yojana
  • Services by way of collection of contribution under any pension scheme of the State Governments
  • Services by the following persons in respective capacities -

(a) business facilitator or a business correspondent to a banking company with respect to accounts in its rural area branch;

(b) any person as an intermediary to a business facilitator or a business correspondent with respect to services mentioned in entry (a); or

(c) business facilitator or a business correspondent to an insurance company in a rural area.

  • Services by an intermediary of financial services located in a multi services SEZ with International Financial Services Centre (IFSC) status to a customer located outside India for international financial services in currencies other than Indian rupees (INR).

Further, relevant additional exemption under IGST:

  • Services received by RBI from outside India in relation to management of foreign exchange reserves.
  • Services imported by a unit or a developer in the Special Economic Zone for authorised operations

Input Tax Credit

Section 17(4) of CGST Act gives two options to banks or financial institutions to avail input tax credit:

Option 1: Reverse the credit pertaining to non-taxable or exempted supplies.

Option 2: Avail 50% of the eligible ITC on inputs, capital goods, and input services in the respective month and the rest shall lapse.

shall follow the following procedure, namely,- (a) the said company or institution shall not avail the credit of,- (i) the tax paid on inputs and input services that are used for non-business purposes; and (ii)the credit attributable to the supplies specified in sub-section (5) of section 17, in FORM GSTR-2; (b) the said company or institution shall avail the credit of tax paid on inputs and input services referred to in the second proviso to sub-section (4) of section 17 and not covered under clause (a); (c) fifty per cent. of the remaining amount of input tax shall be the input tax credit admissible to the company or the institution and shall be furnished in FORM GSTR-2; (d) the amount referred to in clauses (b) and (c) shall, subject to the provisions of sections 41, 42 and 43, be credited to the electronic credit ledger of the said company or the institution.

Note,

1. The option once exercised shall not be withdrawn during the remaining part of the financial year.

2. The restriction of fifty per cent. shall not apply to the tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number.


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TaxGyata Team

TaxGyata Team