After litigation issues around taxation on free banking services came to the forefront, the government on Sunday cleared the air.
Financial services that remain out of GST ambit
In the FAQ document released, the government clarifies that free services such as withdrawal from ATMs upto the allowed limit as well as issuance of cheque books will now be out of the GST ambit.
The announcement comes after banks were asked to deposit service tax for services rendered for free to select customers.
Also, as interest charged on loans is not taxable, any additional amount charged due to delayed payment will also remain outside the purview of GST which came into effect from July 1 last year. This comes as a relief to both banking institutions and customers.
Derivatives which are neither classified as goods nor services and are the part of the securities market will not be liable for GST. Also, as per the FAQ since future contracts that derive their value from underlying security also fall under the derivatives head, they would not qualify for GST implications.
When the forward contract is treated as securities then it shall also not be charged under the new indirect GST tax regime. A forward contract is an agreement to purchase or sell a said quantity of a commodity or currency at a pre-determined future date and price.
Financial services to attract GST
Late payment of dues on credit card outstanding as well as exit load charged on mutual fund investment will be subject to GST.
In respect of the stock broking, charges for delayed brokerage amount payment or settlement of obligation will have GST implications.
Also, stock broking services rendered to FPIs and other NRIs shall not amount as exports and hence will attract GST.
In case of futures derivatives contract, if the settlement happens by way of physical delivery of the underlying commodity or currency, then the contract will be deemed as a normal supply of goods and hence liable to attract GST.
The FAQ also clarifies that in case services are rendered to offshore customers by banks then it shall be treated as intra-state supply and IGST implications will arise.
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