Banking services that will attract a higher service tax of 18% include fund transfers, ATM withdrawals beyond the number of free services and home loan processing fee. Read on to know more.
IBPS PO Preparation fever has taken over the entire country. Every year around 15 lakh candidates apply for IBPS PO exam and around 10 to 12 lakh, appear for the exam. This increases with every year. If you are one of the aspirants who have been waiting for the IBPS PO Notification, you must have already started your IBPS PO preparation as well.
Keeping in mind that General Awareness forms a major part of the IBPS PO Exam Paper, we would like to discuss the current hot topic in the country – GST.
What is GST?
GST incorporates all previous indirect taxes that were being levied by both the Centre and State Governments, except basic customs duties and a few State and local taxes.
Under the GST, tax rates have been fixed in four slabs — 5%, 12%, 18% and 28%, while certain basic goods including commonly used consumables like milk, eggs, fruit, vegetables, meat, fish and chicken, and important services have been exempted from tax.
Why Is GST Such a Hot Topic in India?
Until last month, goods in India were taxed by individual states. Services were taxed by the central government, which also levied further excise and customs duties, surcharges, and cesses, which swamped the businesses with hours of paperwork.
The introduction of GST in India aims to simplify the taxation process and mark a substantial shift in the tax regime.
What is the impact of GST on Banking, Financial services and Insurance (BFSI)?
The analysts believe that BFSI sector will see the major impact of GST as compared to the manufacturing or trading sector. And 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 recent ruling.
1. Increase in financial services transactions
Tax on financial services transactions rose from the 15% to 18% under the newly implemented GST rates, making them marginally costlier.
Banking transactions such as credit card payments, fund transfers, ATM transactions, processing fees on loans etc., where the banks are levying charges, increased tax rates would apply.
However, interest on fixed deposits, bank account deposits etc., which do not attract a charge will remain so even under the new regime.
2. Increase in TER in Mutual Funds
In mutual funds, the total expense ratio (TER) charged for managing funds and distributor commissions etc., would increase by 4-5 basis points. TER for mutual funds varies between 1.25% and 2.75%.
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%.
3. Tax Rate Increase in Insurance Sector
The hike from 15% to 18% will apply to the insurance sector as well. As insurance products like motor, health, and term, are all categorised as risk premium, a 18% tax rate will be applicable under the newly implemented GST.
4. Impact of GST in Stock Trading
In stock trading, the brokerage, which is a small fraction of the invested amount, would include the increased taxes. Depending on the volume of trades, brokerage can be a maximum of 1% for a transaction value of Rs. 10,000. The service tax component comes to about 0.5% of the transaction value.
Overall, GST is a positive step, outweighing its few glitches. GST will bring in transparency and seamlessness of financial transactions in the country. However, the extent of the success depends on how well the transitions take place, within the government and with the tax payers. Meanwhile, we must support this initiative and work towards making a newer and better India.
Hope this blog has helped you understand the impact of GST on Banks and other financial institutions. Do let us know in the comments below if you would like to know more about how GST has effected other sectors in the country! And Good Luck with your IBPS PO Preparation. Click below to download FREE e-books to boost your 2017 IBPS PO Preparation.