GST Impact on the Banking Sector

This message would have been powerful enough to rouse Sleeping Beauty from her deep slumber, if there were heavily taxed banking services back in the day.

In the pre-GST world, Service Tax was charged on services availed from banks, mutual fund, insurance companies and other financial institutions. My bank was kind enough to send me a memo about the change in the tax on services.

The 3% increment in tax is applicable over all services like bank account maintenance charge, withdrawals from ATM, loan processing charges, online money transfers, portfolio management fee by mutual fund house, and so on.

BANKING SERVICES

ATM Transactions:

Automated Teller machines (ATM) were introduced to the Indian public around 1987 and we’ve come a long way since then. We’re dependent on them. Withdrawals from ATM beyond a certain limit are taxable. The tax has increased from 15% to 18% and although 3% increase sounds a lot, it isn’t. Here's how.

So you see, if you withdraw from another bank’s ATM after exceeding the free transaction limit you only have to shell out 60 paise more. Other banking services like online money transfer, credit card charges, and cheque books beyond free limits have been affected similarly.

Loans

Today, you don’t have to be a millionaire to own that splendid, 4BHK duplex. Loans help you realize your dreams. Banks and financial institutions offer diverse range of loans including a gold loan! Whacky, right? The most popular picks are home loans, personal loans, car loans and business loans. The good thing is that home loan, auto loan and personal loan EMIs were not taxable under service tax and therefore will not taxed under GST. Other loans, however, will now attract a levy of 18% in place of the earlier 15%.

On a loan of Rs. 10 lakhs the processing fee could range from Rs. 10,000 to Rs. 20,000 and at 15% the service tax was Rs. 1,500-Rs. 3,000. The total processing fee would add up to Rs.11,500-Rs.23,000. Post GST, at the rate of 18%, the tax would be Rs.1,800-Rs.3,600. The overall process fee will increase from Rs.11,800-23,600.

Maybe Sleeping Beauty’s reaction would’ve been a tad bit dramatic.