{"id":11604,"date":"2020-06-27T14:44:43","date_gmt":"2020-06-27T09:14:43","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=11604"},"modified":"2024-07-25T15:15:01","modified_gmt":"2024-07-25T09:45:01","slug":"impact-of-gst-on-banks-and-nbfcs","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/impact-of-gst-on-banks-and-nbfcs\/","title":{"rendered":"Unfurling the Impact of GST on Banks and NBFCs"},"content":{"rendered":"\n<p class=\"has-drop-cap\">There is a noticeable <strong><em>impact of GST on Banks and NBFCs<\/em><\/strong>. Not only these sectors but also GST effects are visible in varying proportions on all the industries and sectors. After GST implementation, the functioning of banks has witnessed many changes. The taxation system has gone through a considerable shift from the current tax regime. GST regime emerged as a powerful replacement for the prevailing taxation system, and it has removed the cascading effect of taxes. NBFCs businesses should look for obtaining <a href=\"https:\/\/corpbiz.io\/gst-registration\"><strong>GST registration in India<\/strong><\/a>. <\/p>\n\n\n\n<p>In comparison to the <strong><em>trading or manufacturing sector<\/em><\/strong>, the\nimpact of GST on Banks and NBFCs will be up to a greater extent. We can&#8217;t turn\nour face against the fact that among the various services that banks and NBFCs\nprovide, different types of financial services like <strong><em>fee-based, fund-based<\/em><\/strong>,\nand services concerning the <strong><em>insurance sector<\/em><\/strong> would observe a\nvital turnaround. <\/p>\n\n\n\n<p>Taking into account, the operations that banks, as well as NBFCs, render\nlike <strong><em>hire\npurchase, loans, lease transactions<\/em><\/strong>, fund along with non-fund based\nactions, etc., GST compliance will face difficulty on the implementation part.\nThe framework under Model goods and service tax law does not serve the banks\nand NBFCs with many benefits and consideration on a belief of the various types\nof transactions that they have made on a regular basis.<\/p>\n\n\n\n<div class=\"shadow1\"><strong>Note:<\/strong> Earlier, the tax was 15% before GST, and after GST implementation, it has become 18% as a GST rate for rendering the services.<\/div>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/impact-of-gst-on-banks-and-nbfcs\/#Impact_of_GST_on_Banks_and_NBFCs\" >Impact of GST\non Banks and NBFCs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/impact-of-gst-on-banks-and-nbfcs\/#Merits_of_GST_for_NBFCs_and_Banks\" >Merits of GST\nfor NBFCs and Banks<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/impact-of-gst-on-banks-and-nbfcs\/#Issues_Relevant_to_the_Revenue_Recognition_under_GST\" >Issues\nRelevant to the Revenue Recognition under GST<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/impact-of-gst-on-banks-and-nbfcs\/#Take_Away\" >Take Away<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Impact_of_GST_on_Banks_and_NBFCs\"><\/span>Impact of GST\non Banks and NBFCs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>The entire impact of GST on Banks and NBFCs can get evaluated on the\nbasis of the points presented below- <\/em><\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Bothersome\nRegistration Process<\/h3>\n\n\n\n<ul>\n<li>In the present scenario, all the NBFCs and banks that are performing their operations on the <strong><em>PAN-India level<\/em><\/strong> can go ahead for releasing its service tax compliances via a single and centralized system of registration. However, the case won&#8217;t remain the same under goods, and service tax as such NBFCs and banks will be obtaining a separate registration for those states in which they will be executing their tasks and responsibilities. <\/li>\n\n\n\n<li>Alongside registration, there is a substantial rise in the compliance burden concerning the <a href=\"https:\/\/corpbiz.io\/gst-return-filing\"><strong>filing of GST returns<\/strong><\/a>. Since GST has received acknowledgment as a <strong><em>destination based regime<\/em><\/strong>, it has given birth to a multi-stage system. Although it has streamlined the structure of taxation and worked well for the industry by cash flow enhancement, GST compliance is a challenge to look forward to.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Inconvenient\nAssessment and Adjudication<\/h3>\n\n\n\n<p>Impact of GST on Banks and NBFCs would get observed in the form of changes in assessment and adjudication. Earlier, the process of the assessment would get completed by the respective state regulator who has backed the registration of the individual branch. The need of the hour for the registered branch of banks and <a href=\"https:\/\/corpbiz.io\/nbfc-registration\"><strong>NBFCs<\/strong><\/a> is to legitimize their position on the applicability in all the respective states and objective behind the <strong><em>utilization of ITC in numerous states. <\/em><\/strong><\/p>\n\n\n\n<p>In addition to this, several <strong><em>adjudication authorities<\/em><\/strong> are\nactively involved under goods and service tax. Due to the good number of\nopinions and variations in opinions on one holding issue, delay in adjudication\nwill occur. In the current scenario, a single adjudicating authority is\nresponsible for adjudging a taxpayer on the involvement of an issue. In the GST\ncover, the different adjudicating authorities will look at the same issue from\na different perspective. Further, we are bound to say that one adjudication\nauthority in the pre-GST period was convenient, fast, and worthwhile for banks.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Leveraging\nand De-leveraging of ITC<\/h3>\n\n\n\n<ul>\n<li>In the present time, Banks, along with NBFCs, significantly take further steps with the choice of reversal of <strong><em>50% of the CENVAT credit<\/em><\/strong> that is availed against inputs as well as input services. On the other hand, <strong>CENVAT credit<\/strong> on capital goods could get availed without any reversal condition attached. <\/li>\n\n\n\n<li>Under goods and service tax, <strong><em>50% of the CENVAT credit<\/em><\/strong> resorted against capital goods, inputs, as well as input services, will get reversed which would bring them into a situation of <strong><em>reduced credit of 50% on capital goods<\/em><\/strong> and eventually, it would lead to the increment in capital cost.<\/li>\n<\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/cbic-regarding-gst-on-directors-remuneration\/\">\nClarifications made by CBIC regarding GST on Director\u2019s Remuneration\n<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Merits_of_GST_for_NBFCs_and_Banks\"><\/span>Merits of GST\nfor NBFCs and Banks<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul>\n<li>Goods and service tax is known for keeping <strong><em>tax\nevasion in check<\/em><\/strong> and bring a reduction in the parallel economy\ncreation. It will assist financial organizations in getting benefits in the\nfuture progression of time with an increase in funds demand and better\naccountability of the transactions. <\/li>\n\n\n\n<li>In the pre-GST period, the banks were receiving\nonly a <strong><em>partial credit of CENVAT<\/em><\/strong>. Besides this, no state VAT credit got\nobtained on the procured goods. Credit for applicability of goods and service\ntax on purchased goods would get availed as all indirect taxes would get\nsubsumed to GST.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Issues_Relevant_to_the_Revenue_Recognition_under_GST\"><\/span>Issues\nRelevant to the Revenue Recognition under GST<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>The entire impact of Issues Relevant to the Revenue Recognition under GST is on the basis of the points presented below:-<\/em><\/strong><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" width=\"576\" height=\"306\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/06\/image-173.png\" alt=\"Revenue Recognition under GST\" class=\"wp-image-11605\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/06\/image-173.png 576w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/06\/image-173-300x159.png 300w\" sizes=\"(max-width: 576px) 100vw, 576px\" \/><\/figure><\/div>\n\n\n<h3 class=\"wp-block-heading\">Non-Account\nLinked Financial Services <\/h3>\n\n\n\n<p>Here, the place of supply of services will be the <strong><em>service provider location<\/em><\/strong>.\nIt will hit organizations which are spreading their wings in the remote\nlocations to put their presence in place but looking for operating and\nperforming their transactions from a back office, present in any other state.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Account-Linked\nFinancial Services <\/h3>\n\n\n\n<p>The place of supply is going to be the location of the receiver of the\nservices on the supplier services records. It&#8217;s not going to be easy to\nrecognize the state of location of the service beneficiary in the centralized\nas well ad digitized conditions existing in India. The service provider is\nlikely to have a different address, i.e., <strong><em>current address, KYC address, permanent\naddress, and the communication address<\/em><\/strong> in those cases in which various\nservice recipients such as traders, professionals, manufacturers, and workers\nwho look for better opportunities and thus, they leave one place and visit\nanother site.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Actionable\nClaims<\/h3>\n\n\n\n<p>Actionable claims don&#8217;t account as a service under Service tax, and thus,\nunder the current regime, no tax is payable. Actionable claims have now become\na part of the definition of supply of goods under goods and service tax. Now,\nthose services that get rendered from discounting of bills to securitization\nwill be taxable in an impact form <strong><em>B2B as well as B2C<\/em><\/strong> crucially.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Take_Away\"><\/span>Take Away<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The overall reconsideration of the transactions, operations, compliance, as well as accounting, will take place with the significant <strong><em>impact of GST on Banks and NBFCs<\/em><\/strong>. GST registration has benefitted the functioning of NBFCs businesses in India. &nbsp;As the expectations suggest that further details will emerge, challenges in managing customer profiles, leading IT systems to not only operate but also capture data, etc. would come across the financial sector. IT systems must be careful enough to sort out the issues related to <strong><em>GST compliance<\/em><\/strong>.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/participation-of-nbfcs-in-insurance-business\/\">A Complete Overview on Participation of NBFCs in Insurance Business<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>There is a noticeable impact of GST on Banks and NBFCs. Not only these sectors but also GST effects are visible in varying proportions on all the industries and sectors. After GST implementation, the functioning of banks has witnessed many changes. The taxation system has gone through a considerable shift from the current tax regime. [&hellip;]<\/p>\n","protected":false},"author":19,"featured_media":11611,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[16,91],"tags":[706],"acf":{"service_id":"334"},"authorName":"Margesh Rai","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2024\/03\/Margesh.png","authorDescription":"With 10+ years of creative writing experience and 500+ blogs and thought leadership articles to his credit, Margesh Rai has left a significant impact in the field of content marketing. A published author and poet, Margesh Rai has experience writing for 20+ segments, such as Legal, Fintech, SAAS, Dairy, Real Estate, Hospitality, Recruitment, Sustainability, etc.","postViews":5640,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/11604"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/19"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=11604"}],"version-history":[{"count":17,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/11604\/revisions"}],"predecessor-version":[{"id":65650,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/11604\/revisions\/65650"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/11611"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=11604"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=11604"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=11604"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}