Credit card penalties, share broking and NRI insurance to attract GST
04 June 2018
While banking services like ATM withdrawals that are provided free of coast to customers will not attract GST, late payment charges on outstanding credit card bills and purchase of insurance policies by NRIs will attract the levy, the government has clarified.
The revenue department has clarified that transactions relating to securitisation, derivatives, futures and forward contracts are exempt from GST across banking, insurance and capital market sectors.
The revenue department issued clarifications on the applicability of the goods and services tax (GST) on banking, insurance and stock broking businesses in a set of frequently asked question (FAQs).
This has put to rest the confusion prevailing over the issue of applicability of GST on free banking services like cheque book issuance and ATM withdrawals
In fact, banks had earlier received service tax notice for free services offered to their clients, which prompted the department of financial services to approach the revenue department seeking exemption of these transactions from GST.
The revenue department, however, clarified that services supplied without consideration to related persons or distinct persons only would qualify as services supplied without consideration to a recipient other than 'related party' / 'distinct person' taxable.
"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 levy of GST 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 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.