Free banking services not liable to GST, mutual fund exit load to attract levy

GST

Free services, like ATM withdrawals, provided by banks to customers will not attract GST, but late payment charges on outstanding credit card bills and purchase of insurance policies by NRIs will attract the levy. In a set of FAQs on applicability of Goods and Services Tax (GST) on banking, insurance and stock brokers sectors, the revenue department has clarified that transactions relating to securitisation, derivatives, future and forward contracts are exempt.

The clarification by the department keeping free banking services like cheque book issuance and ATM withdrawals outside the ambit of GST has put to rest the confusion prevailing over the issue.

Last month, the Department of Financial Services had approached the revenue department seeking exemption of these transactions from GST after the banks received service tax notice for free services offered to their clients.

Clarifying whether, services supplied without consideration to a recipient other than 'related party' / 'distinct person' taxable, the FAQ said Section 7 of the CGST Act, 2017 provides that services supplied without consideration to related persons or distinct persons only would qualify as 'supply'.

"Therefore, where the services are supplied by a supplier without consideration to an unrelated recipient or a person other than a related or distinct person, the same would not amount to supply and not liable to GST," it said.

On the levy of GST on insurance policies purchased by non-resident Indians (NRIs), it said the amounts from Non-Resident External Accounts are paid in Indian Rupees and are not received in convertible foreign exchange.

"Therefore, the conditions for export of services as provided under section 2(6) of IGST Act, 2017 are not satisfied. Life Insurance services in such cases would be treated as inter-State supplies and subject to GST," it said.

On whether GST will be levied on the exit-load of mutual funds, the department said exit load in the form of a fee (whether or not as a fixed percentage of the investment) is liable to GST.

"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," the FAQ said.

Besides, late payment of dues on credit card outstanding as well as interest on a finance lease transaction are taxable under GST.

The FAQ (frequently asked question) explained finance lease as a method of borrowing against the asset. The interest represents the time value of the money expended by the bank in financing the asset.

PwC Partner & Leader, Indirect Tax, Pratik Jain said the FAQs are very significant as globally the financial service sector is considered as most complex from GST standpoint.

"Transactions relating to securitisation, derivatives, future and forward contracts have been clarified to be exempt from GST, which have been debated since introduction of GST. While few aspects such as taxability of transactions between Indian and overseas offices of same bank still need some more clarity, industry would welcome the government's initiative," Jain said.

Clarifications around services provided by multiple branches and to multiple locations of customers would provide much needed certainty to the industry and reduce possibility of litigation, he said.