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Customer To Pay A New Roaming Charge

It will be sometime before banks sort out registration woes

Photo Credit : Umesh Goswami


It is truly federal. Under the GST regime, bank branches will have to be registered on a state-wise basis; and it will, in one fell swoop, up both the workload and expenditure costs for banks. The other headache is, it will be a while before banks — especially state-run banks — which operate on multiple tech-platforms for various business lines (as well as for the accounting and tax treatment of the same) move over to GST-compliant systems.

The concerns were flagged off by the Indian Banks’ Association, which told the Parliamentary Standing Committee on Finance: “Since the GST will be operational from 1 July, banks have to make lot of changes in their systems and other procedures. The preparedness of all banks for implementation of GST is a question mark”.

What is the issue?  Well, as on date, the place of provision of services provided by banks (and non-banking finance companies) to their account holders, and even where it is not so (that is not linked to account holders) is the location of the service provider. It also raises the following question — how do you determine the “location of service recipient’ in the digital world; when anywhere and everywhere banking is the norm.

Explains Himanshu Tewari, analyst at BMR Advisors: “Under the GST regime, financial services businesses will need to identify services that are linked to an account or otherwise, as this will determine the place of supply. The term ‘account’ has not been defined — therefore, the question whether a dematerialised trading or loan account could be considered as an account would impact tax compliance resulting in a departure from the current law. Our preliminary view is that liberal construction of the term ‘account’ is warranted.”

It will also mean banks will need to have state-wise registration where they have a branch. It will lead to a huge increase in compliance costs. A bank may be filing only two returns on an annual basis as a service tax assessee right now, but with GST, it will have to file as many as 61 returns per year for every state they are present in (five returns per month plus one annual return).

For every GST transaction, banks will have to clearly state the place of consumption where GST will be paid. And for intra-bank transactions (that is within a bank’s network of branches) — within and outside a state, it will prove to be a Herculean task to pinpoint the place of supply. As GST stipulates the assessee will determine whether a transaction is intra-’or inter-state, banks will have to work out whether the payment is against Central GST (CGST), State GST (SGST) or Integrated GST (IGST), based on the nature of the transaction.

The issue is a touchy one. While private and foreign banks moved early on to be GST-compliant, their state-run banking brethren did not move well in time. Will they get a breather? Unlikely.

“Banks will have to register separately in each state under GST. They do not have any option. That is the law under GST. We will try to ease out any hassles,” Revenue Secretary Hasmukh Adhia made it clear earlier in June after a meeting with state-run bankers. “Banks have to brace up for the GST. They can’t say they are not ready,” he added.

All the additional costs can only mean one thing (banking will anyway attract a GST of 18 per cent from the 15 per cent as on date) — it will be passed on to you, the customer. Be prepared to shell out more.

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Magazine 8 July 2017 gst regime customers banking

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