Goods and Service Tax impact on Banking

1. IMPACT OF GST ON
BANKING SECTOR.
Presentation By:
Mohit Garg (1627820)
Shashank Joshi (1627828)

2. INTRODUCTION OF GST
Goods and Services Tax (GST) Implemented on 1st of July 2017, replacing a multitude of central as
well as statewide taxes.
Under the previous tax system, direct and indirect taxes levied on goods and services fell between
18% and 40%, which have now been restructured between 5% and 28% for around 1200 goods
and services.
• France was first to adopt GST in 1954.
• The high rates were responsible for greater tax- evasion which made France to introduce GST
as value added taxation regime.
• Currently almost 140 countries have implemented GST with some countries having Dual-GST (
e.g. Brazil, Canada etc.) model.

3. India has chosen the Canadian model of dual-GST
It has three components i.e.
• CGST (Central Goods and Services Tax)
• Will be collected by central government on sales of goods and services.
• SGST (State Goods and Services Tax)
• Will be collected by the respective state governments on sales of goods and services.
• IGST (Inter-state Goods and Services Tax)
• Will be collected by the central government on the interstate transaction of goods and services. The
collected IGST revenue will be distributed between the states as per the view of the proposed GST
Council.

4. INTRODUCTION TO BANKING SECTOR
• The Indian banking system consists of 27 public sector banks, 26 private sector
banks, 46 foreign banks, 56 regional rural banks, 1,574 urban cooperative banks
and 93,913 rural cooperative banks, in addition to cooperative credit institutions.
• Public-sector banks control more than 70 per cent of the market.
• Banks are also encouraging their customers to manage their finances using
mobile phones.

5. PERFORMANCE OF BANKING SECTOR
• Credit off-take has been surging ahead over the past decade, aided by strong
economic growth, rising disposable incomes, increasing consumerism & easier
access to credit.
• Strong growth in savings amid rising disposable income levels are the major
factors influencing deposit growth.
• During FY06–17, total money supply in the country increased at a CAGR of 9.92
per cent, reaching to USD1.8 trillion by the June end 2016.
• Public sector banks account for over 71.72 per cent of interest income in the
sector in FY16.

7. NOTABLE TRENDS
• Improved Risk Management Practices
• Diversification of Revenue Stream
• Technological Innovations
• Financial inclusion
• Government policies- mergers and other schemes

8. IMPACT OF GST ON BANKING INDUSTRY
• It is expected that service sectors will have major impact of GST than the
manufacturing or trading sector.
• Among the services provided by Banks and NBFCs, financial services such as fund
based, fee-based and insurance services will see major shifts from the current
scenario.
• Under Model GST Law, the framework does not provide much benefits or
consideration to banks and NBFCs on understanding of the type of transactions
made by them on a consistent and voluminous basis.

9. SOME OF THE ISSUES AND IMPACTS PERTAINING TO THE
PROVISIONS OF GST LAW
1. Widespread number of branches; registration a hassle
• Under service tax compliances, a single `centralized’ registration.
• Under GST, a separate registration for each state where they operate.
• Increase in Compliance Burden.
2. Assessment and Adjudication made bothersome
•Under GST different adjudicating authority may take a different view on the same
issue. Clearing up and dealing with the difference of opinion provided by the different
adjudicating authority would be difficult.

10. 3. Actionable Claims
• Actionable claims do not constitute as a service under Service Tax.
• Under GST actionable claims are now included in the definition of supply of goods.
• Services provided from bills discounted to securitization will now be taxed as an effect B2C
B2B majorly.
4. Paying GST at Applicable Rate
With GST, services are expected to attract 18% GST. This rate is higher by 3% from the current
tax rate of 15%.
5. Determining Place of Supply Could be Critical
GST provides an important functional control as banks get to decide whether a transaction would
under Central GST (CGST), State GST (SGST) or Integrated GST (IGST) bracket.

11. CONCLUSION
• Financial sectors face a can of worms in terms of the manner of transacting
business, customer profiles, services matrix, IT systems and operation to capture
the data at both front and back end.
• IT systems will need to be more vigilant in terms of serving the purpose of
solving the complexity related to GST compliance and procedures at a higher
volume.
• The impact of GST on Banks and NBFCs will be such that operations,
transactions, accounting and compliance will need to be reconsidered in its
entirety.

12. THANK YOU