GST free banking services, mutual fund exit load to attract tax

New Delhi : In the recent development in banking sector, reports mentioned that free bank services, like money withdrawals via ATM will not attract GST. However, late payment on outstanding credit card bills and purchase of insurance policies by NRIs will be liable to tax.

In a set of frequently asked questions 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 excused.

The clarification by the department keeping free banking services like cheque book issuance and ATM withdrawals outside the ambit of GST has rest down the confusion existing 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 selflessness 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.

The tax of GST on insurance policies purchased by non-resident Indians (NRIs), mentions that 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 which 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.

Conversely late payment of dues on credit card outstanding as well as interest on a finance lease transaction is taxable under GST.

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.