GST Impact on the Banking Sector

The Goods and Services Tax (GST) has affected almost every business sector in the country, and banking is no different. There has been a change in the rates of various insurance and investment services in the industry.

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ATMs

The Automated Teller Machines (ATMs) have been put under the highest GST tax slab i.e. 28%. With these important machines becoming expensive, smaller banks and newly licenses microlenders will shy from setting up enough units for their customers. Moreover, the tax rates on ATM services such as machine servicing and annual maintenance contracts have also increased 18% from the previous 15%. However, these are borne by the banks.

Since Point of Sale(PoS) devices are put under the 18% tax slab as opposed to 28% of ATMs, it could be one of the reasons why banks are pushing digital mode of payments.

Insurance Products

Insurance products have become costlier for the customers as the tax rates have increased. For most types of insurance products, the applicable rate is 18% from the previous 15%. These include health insurance, ULIP, term insurance, car insurance, etc.

Mutual Funds

Mutual funds are impacted as an 18% GST is levied on the Total Expense Ratio (TER). Previously, it was 15%.

As per the SEBI guidelines, Assets Management Companies (AMCs) can impose a tax within the limits provided under the regulations. So, if a scheme’s TER is 2.50% (without including service tax), that means from 2.875% (including service tax of 15%) it’s now 2.95% (including GST of 18%).

The return to investor thus suffers now, although marginally. Besides, AMCs can absorb the damage on their own since.

Banking Services

For the customers, things like ATM transactions, non-maintenance of monthly average balance charges, are also increased to 18% from the previous 15%.

Overall, it’s easy to see that tax rates have increased. However, the government says that the ITC (Input Tax Credit) feature will allow the banks to pass on the benefit to their customers and thus cancel out the effect.