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Most banks have now applied transaction charges on cash withdrawals from different bank ATMs or cash withdrawals from branch. So, banking transactions such as credit card payments, fund transfer, ATM transactions, processing fees on loans etc., where the banks are levying charges, increased tax rates would apply.
Let’s a delve a little bit into the matter of GST and its impact on borrowing. The view is that there would be a marginal rise in cost at points where the GST comes into play, for example say a personal loan, service tax in the earlier tax regime was levied upon the processing fee and prepayment charges, these are expected to rise but not to levels that would cause worry.
For example, processing fee, depending on the lender was charged at 1-2% of the loan and this fee would attract a service tax of 15%, now this would rise to 18%. A marginal increase in the cost of borrowing is also applicable for home loans, auto loans and personal loans.
The impact of GST on mutual funds will be minimal. The levy of GST will be on the Total Expense Ratio(TER) which is the measure of cost incurred by a mutual fund house to operate its mutual funds. The TER rate is expected to rise by 3%.
Be prepared to pay a little extra on your Insurance premiums. Insurance companies charge a service tax on term and health insurance products, delay in payment of insurance premiums and these charges are predicted to go up from 15% to 18%. However, some Insurance schemes such as the Aam Admi Bima Yojana, Pradhan Mantri Jeevan Jyothi Bima Yojana are exempted.
Let us now look at the changes that banks themselves must undergo as part of the GST roll-out.
Banks having branches in different states must register in each state and this will come under the service tax compliance of that respective state. It is enough to register once for multiple branches in each state. This will increase compliance, reduce the pressure on documentation and help in ensuring seamless integration of accounts in various states.
Bank continuously provide services to each other, which are also taxable under GST. However, the Tax can be claimed as input credit for further set off.
Input Tax in simple terms is when you are paying tax for your output produced you can reduce the tax that you have already paid on inputs. Input tax credit is not allowed as per current tax structure. Under GST regime input tax credit will be allowed to be set-off against the taxes payable by the bank on making outward supply. However, they must maintain separate books of account to have a control for all input tax credit and utilized and unutilized credit.
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