GST AND ITS

IMPACT ON
INDIAN BANKING
INDUSTRY
Presented By – Vatsal Subhash Changoiwala
22209
INTRODUCTION
GST is an indirect tax which was introduced in India on
July 1st of 2017 and was applicable throughout India
which replaced multiple and compound taxes imposed
by the central and state governments on a large number
of goods and services.

Under the GST tax system, goods and services are

imposed with rates of 0%, 5%, 12 %, 18% and 28%.

There is a unique rate of 0.25% on rough semi-precious

and precious stones and also 3% of tax on gold.

In addition to that, there is a cess of 22% or other rates

on top of 28% GST applies on a few items like luxury
cars, tobacco products, and aerated drinks.
INTRODUCTION TO BANKING SECTOR
The Indian banking system consists
of 27 public sector banks, 26 private
sector banks, 46 foreign banks, 56
regional rural banks, 1,574 urban
cooperative banks and 93,913 rural
cooperative banks, in addition to
cooperative credit institutions.
Public-sector banks control more
than 70 % of the market.
 SERVICES ON WHICH GST IS
APPLICABLE

+
Loan Processing Charges
+
Prepayment Charges.
+
Repayment Mode Swap Charges.
+
No Objection Certificate.
+
Loan Cancellation Charges.
+
 IMPACT OF GST ON INDIAN BANKING
SECTOR
 Before implementation 15% Service tax rate is followed, after GST
implementation 18% tax rate follows.
 Centralized registration is not available under GST. Bank has to
register separately for every state where they have branch (section 22
of CGST Act). In case a bank has multiple branches in one state, only
one registration is required for all the branches in that state.
 Banks have to furnish 3 returns every month and an annual return.
 As per Service definition given by section 2(102), Service means
anything other than goods. By interpreting this, interest earned by
banks will also be taxed in GST.
 IMPACT OF GST ON INDIAN BANKING
SECTOR
 Inter sale or Purchase of Foreign currency amongst bank or
authorized dealers of foreign exchange is also taxable in GST as
no exemption is given.

 Services by RBI are also taxable in GST as no exemption is given.

 GST is a place of supply based tax regime. Hence, for every

transaction in GST, the bank will need to determine the place of
consumption where GST will be paid.
 BENEFITS TO BANKING INDUSTRY
 Bank will be able to set off their GST liabilities against credit received on purchase of
goods.
 Banks do not get input tax credit of State VAT paid on any goods procured by them.
As all these indirect taxes will be subsumed in GST, banks will be able to take credit of
GST paid on procurement of goods as well.
 Input tax credit is not allowed as per current CENVAT rules. But under GST regime
input tax credit will be allowed which would be used by a bank for making outward
supply in the course of GST Will help to reduce tax evasion.
 Under GST doing business will be easy. The increase in business will lead to additional
demand of funds. Addition demand of funds will lead to increase in number of
transactions in the bank as the business and current scenarios ask to go for digital
transaction.
 CONSTRAINTS TO BANKING INDUSTRY
 Banking became costlier to the customers.
 Customers are charged 18% on home loan, before which was
8.5%.
 In banking, place of supply of service shall be the location of the
customer on records.
 Difficult for the bank to cope up with the changes in registration
as the presence of the bank in each locality.
 It is expensive and inconvenient task for the banks that each
transaction between branches of the same banks are attracted by
IGST.
 DIFFICULTIES TO BANKING INDUSTRY
 One of the main problems was that the banks had to manage the number of branches
and registration became a complete hassle. Banks were required to attain a separate
registration for every state.
 Input tax credit led to the leverage and de-leveraging because of the goods and service
tax in the country.
 Assessment was an issue because it could only be initiated if the branch is registered in
the state. Each and every branch in the state is required to justify their position on the
basis of chargeability.
 Non-account linked financial service was another issue as the supply place is required
to be the location of provider of service. Banks are required to establish their existences
in the location that are remote and which created a lot of hassle for the banking sectors.
 BENEFITS TO BANKING INDUSTRY
• The major advantage of GST on Indian banking sector includes that it’s a
transparent tax and it has efficiently reduced the number of indirect taxes in
the country.
• Banks will be having the efficiency of setting their liabilities of goods and
service tax against the received on the buying of goods and services.
• Under the mechanism of CENVAT, banks will become eligible for taking
partial credit on the duty of excise and service tax paid on the qualifying
goods procurement and the services that are used for the output service
provision.
• Under the regime of GST, tax credit will be consented to the banking sector
with which they will be able to make outward supply.
 CONCLUSION
 The GST system is basically restructured to simplify current
critical indirect Tax system in India.
 Like anything new, at the time of implementation of GST all the
sector facing many troubles. But it will simplify existing indirect
tax system and will help to remove inefficiencies created by the
existing current taxation system.
 It gives various advantages such as unified tax system, easy input
credit, reduced compliances etc.,
 Thus we conclude, that GST play a dynamic role in the growth
and development of our country. But in the banking sector it hikes
the service tax rate, causes in-comfort to the users.
 References

 Research Paper of B. SAVITHRI, Head of the Department of Commerce,

Krishnasamy Science, Arts & Management for Women, Cuddalore
(Tamil Nadu) and Harini V., Student of M.com Periyar Arts College,
Cuddalore (Tamil Nadu).
 https://taxguru.in
 https://www.icicibank.com
 https://economictimes.indiatimes.com
 Banking theory law and practice book by B. SANTHANAM
 www.google.com
THANK YOU