As debt instruments such as debentures, bonds etc. are in the nature of loans, interest thereon will be exempt from GST.
The government has released some clarification on how banks, insurance companies, stock brokers – essentially the financial sector – is taxed as per the prevailing Goods and Services (GST) rates. GST or the Goods and Services Tax, which came into effect on July 1 last year, is a uniform tax code imposed on the entire country. Most goods and services barring some goods such as fuel and liquor are covered under the GST regime. The latest document on GST seeks to clarify on how the tax is levied on delayed interest payments received by banks or say, the transfer of loans from one bank to another.
GST Clarifications: Ten Things You Should Know
Is interest on debt instruments exempt from GST?
Yes. As debt instruments such as debentures, bonds etc. are in the nature of loans, interest thereon will be exempt from GST.
Is GST required to be paid on additional interest charged in case of default in instalment payment by the customer?
Yes. As per Section 15(2) of CGST Act, 2017, the value of supply includes, inter alia, interest for delayed payment of any consideration for any supply. Additional Interest charged for default in payment of instalment in respect of any supply, which is subject to GST, will be included in the value of such supply and therefore would be liable to GST
Would charges for late payment of dues on credit card outstanding be chargeable to GST?
Yes. The exemption from levy of GST on interest specifically excludes interest charged on outstanding credit card balances as per serial no. 27 of the table of notification No. 12/2017-Central Tax (Rate) dated 28th June, 2017, as amended.
Whether tax is payable on interest charged by the banks on the outstanding amount of gold (metal) loan?
Yes. The Gold (Metal) Loan Scheme is a means of financing. The jewellers can purchase gold (metal) from the Banks on outright basis on payment of the price. The gold (metal) loan only provides an option to the jeweller to avail a loan and pay for gold (metal) at a future date. For this facility, the jeweller pays interest to the bank. The grant of loan and levy of interest is dependent on the purchase of gold, and therefore, part of the same transaction or facility; therefore the interest, which is the consideration, will not be exempt as per provisions of section 15(2)(d) of the CGST Act, 2017.
Will GST be charged in transactions, where loan of one bank is taken over by another bank?
Yes. GST will be chargeable on any transaction processing fees levied for such takeover of loans, but not on the interest component (as interest is exempted).
Whether GST will be levied on interchange fees on card settlement fees paid/shared by banks?
Fees charged for card settlement is a consideration which is part of a separate transaction between the banks which are parties to this transaction and shall be liable to GST. This is a B2B supply and credit of this transaction is available.
In the case of group insurance policies, a Master Policy is issued; the beneficiaries of the Master Policy may be located in more than one State. In such cases, what will be the place of supply of services?
In the case of issuance of master / group policy to a registered person where the premium charged is a single premium and not segregated based on the beneficiaries of the insurance policies, the place of supply for such policy will be the location of the registered person paying the premium.
Is GST leviable on interest/ delayed payment charges charged to clients for debit for settlement obligations/ margin trading facility?
Any interest/ delayed payment charges charged for delay in payment of brokerage amount/settlement obligations/margin trading facility shall be leviable to GST.
Whether GST will be levied on the exit-load on mutual funds?
Yes. Exit load in the form of a fee (whether or not as a fixed percentage of the investment) is liable to GST. Even if the exit load is in the form of units in the fund, it may be concluded that the consideration received in money was later converted to net asset value (NAV) units. NAV is the value of an entity’s assets minus the value of its liabilities. Exit load is a fee or an amount charged from an investor for exiting or leaving a scheme or the company as an investor.
What is the leviability of GST on securitization transactions undertaken by banks?
Securitized assets are in the nature of securities and hence not liable to GST. However, if some service charges or service fees or documentation fees or broking charges or such like fees or charges are charged, the same would be a consideration for provision of services related to securitization and chargeable to GST.