On 1st July 2017, Hon’ble Prime Minister launched GST (Goods and Services Tax) from the Parliament of India. He lauded it as the step for the economic integration of India. This single tax reform is a new hope for our energized and growing economy. GST is about the vertical and horizontal integration of all indirect taxes in India. It will have long reaching impacts on the access to financial services which have been analyzed further.
Tax on financial services transactions such as banking transactions (credit card payments, fund transfer, ATM transactions, processing fees on loans etc.), mutual funds, insurance and the stock market has increased from the previous 15% to 18%, making them marginally costlier. It would have an inflationary impact in the near future. But many experts are hopeful that the increase in cost may not last in the long run as banks will pass on the benefit of input tax credit, under GST, to their customers.
Ninety percent of the products in the service sector were placed in the 18% bracket, which is a marginal increase but is expected to reduce complexity in the transaction and improve ease in availing of input credit. Out of all services, 63 have been put on a negative list, which is exempt from tax.
Mutual fund distributors earning up to Rs. 20 lakh will remain exempt from GST, while those earning more will see their tax rate increased from 15% to 18%. The hike from 15% to 18% will apply to the insurance sector as well.
In stock trading, the brokerage would have increased taxes. Depending on the volume of trades, the brokerage can be a maximum of 1% for a transaction value of Rs10,000.
As per Vinod Kothari Consultants, on the matter of loans coming under GST, they say that the definition of goods and supply under sections 2(52) and 2(102) of the CGST Act, exclude money to money transactions. Loan transactions being money to money transactions are therefore not subject to GST.
Further, the GST Council has also exempted money to money transactions in the Schedule of GST rates for services Entry 8 of the list of exempted services states. Therefore, interest charged on loan transactions shall not be subject to GST.
To conclude, with the arrival of GST, financial services transactions have become dearer but in the long run service providers will pass the benefits to consumers. We must embrace GST era with positive spirits!
Abhishek Ranjan is a Research and Policy Analyst to Members of Parliament (MPs) Mr. Ninong Ering and Mr. Dilip Tirkey. He is also working as a Consultant to DTSRDF and University of Chicago’s Delhi Center for Anubhav Lecture Series and is a Policy Consultant for FinTech startup Credy. Earlier, he was a LAMP Fellow and graduated in Engineering from Manipal Institute of Technology.