The officials of the Central Board
of Indirect Taxes and Customs (CBIC) had earlier justified such notices arguing
that banks were not offering free services, but were actually charging
customers.
Amid speculation whether the ‘free
services’ offered to customers by banks and other financial institutions will
come under the ambit of GST (goods and services tax), the government has
recently clarified that these services will not attract GST.
The confusion
arose when notices were sent to a large number of banks for non-payment of
service tax on free services offered to their clients under the pre-GST regime.
The officials of the CBIC had earlier justified such notices arguing that banks
were not offering free services, but were actually charging customers. However,
the Department of Financial Services approached the revenue department in May,
seeking exemption of free banking services from GST.
Now CBIC has clarified that there
won’t be any levy of GST on services provided without consideration to other
than a related or distinct person. Therefore, GST won’t be levied on free
banking services such as ATM withdrawals or cheque book issuance. However,
transactions like purchase of insurance policies by NRIs and late payment
charges on outstanding bills of credit cards will attract GST.
Here we are taking a look at 5
banking and financial transactions on which GST will be levied now:
1. Credit card late payment charges
CBIC has clarified that charges for
late payment of dues on credit card outstanding will be chargeable to GST.
Thus, if you delay your credit card payments and banks levy charges on it, then
you will now be required to pay GST on those charges also.
2. Life insurance policies issued to NRIs
The life insurance policies issued
to non-resident Indians (NRIs), where premium is received through Non-Resident
External Account, are taxable since payments are made in Indian rupees and not
in convertible foreign exchange.
3. Exit loads charged by mutual funds
Will the exit loads charged by
mutual funds now attract GST? The government has clarified that such exit loads
will now attract GST. It has said that exit load in the form of a fee (whether
or not as a fixed percentage of the investment) will come under the GST ambit.
“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,” it
said.
4. Default in loan payments
If an additional interest is slapped
on a bank customer for defaulting in the payment of loan instalments, that will
be liable to GST.
5. Sale of repossessed asset
Sale of repossessed asset falls
within the scope of supply. Therefore, its will be chargeable to GST.
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