Revenue department clarifies GST applicability on finance sector


The revenue department updated a set of FAQs related to Goods and Services Tax (GST) applicability on the insurance, banking, and capital markets. The finance sector, especially banks, had many queries with regard to the application and exemption of GST as many banks had received a service tax notice for certain free services offered to their clients. The FAQs clarified many doubts regarding the same.

The revenue department of India clarifies how GST is applied on the finance sector.

According to the FAQs, since services like ATM withdrawals and issuance of cheque books are free services provided by banks, such services will not attract GST. Transactions pertaining to derivatives and securitisation are exempt. Future and forward contracts of commodities, too, are exempt unless it includes actual delivery of commodities.

However, any interest charged on financial lease and late payment charges on outstanding credit card bills will attract GST.

Further, insurance policies purchased by NRIs will be eligible for GST application as the amount from NRE accounts are paid in rupees and not convertible foreign exchange. Hence, it rules out the conditions for export of services and attracts GST.

The exit load on mutual funds will be subject to GST. The FAQs clarified that even if the exit load is found to be in units, it is assumed that the consideration received in the form of money was converted to NAV units later.

In case of stock broking, charges for late payment of brokerage amount will be liable to GST. In addition, stock broking services provided to NRIs will be taxed under GST as they are not considered as exports.

In the event that gold is imported, GST is applicable once at the time of import. It does not attract GST later when it is taken over by the bank.

Since services provided by banks to the Reserve Bank of India are not stated as exemptions of GST, the tax will be levied on such services. However, it was made clear that the repo rate and reverse repo rate are GST exempted.

Services that do not attract GST Services that attract GST
ATM withdrawal Late payment charges on outstanding Credit Card bill
Issuance of cheque books Purchase of insurance or stocks by NRIs
Derivatives and securitisation transactions Exit load on Mutual Funds
Future and forward contracts on commodities Charges for delayed payment of brokerage amount for stock broking
Import of gold
Services by banks to RBI


Another clarification provided by the department is that if a customer enjoys benefits from many bank branches, the home branch of the customer will be considered the supplier of services. Also, they can be given a tax invoice by the bank at the end of the month stating the tax deductions made.


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