GST has beautifully reinstated the cascading taxation structure. ‘One Nation, One Tax’ turn out to be a reality for the Indian citizen. Each sector is affected by the GST whether it is a relation to service, financial or banks.
Since 70 years, India was waiting for a big change in the economy that can improvise the condition of the country. The implementation of GST has affected around 17 federal and state taxes. Our Prime Minister wanted to execute this law passionately as it increased the GDP percentage to about 2%. This provides the support to the Indian economy to become fastest growing in the world. Almost from starting, the tax system had many layers that added 25-40% to the COGS.
Without giving a thought, all industries welcomed the GST with a standard of 18% to be implemented. In some of the areas, the consumers get the benefits while in some of the others might not. If we talk about the banking and financial sector, there are some areas which become a bit expensive for the customers. After the GST comes into action, the services rate is now increased up to 18% to 20%. The GST is classified into two sections – SGST and CGST.
The consumers still have the fears whether GST has some scope related to the interest of loans, foreign currency, trading and retail services. Does the cost of each is increased? Most of the banks made different rules to deal with the GST.
Impact of the GST
Being the biggest reform, a rethought must be given when it comes to banking and financial services.
- Tax rate
With 18-20% service tax, the banking and financial sector have become a costly affair. There are some regulatory compliances too that has to be followed under the GST.
- Collateralized Borrowing and Lending Obligation (CBLO)
Introducing as an RBI backed obligation, CBLO defines the terms and conditions related to a loan. From now, the financial services are imposed to different activities including transaction fee and processing fee. After coming into the picture, the GST had made a provision present in between fee-based and fund-based transactions.
- Finance Lease
Previously, both the service tax and Vat are included in the tax system. But now, the operating lease acts as a service while the finance lease works as the supply of goods. In addition to this, if leasing of an asset is done out of India, then also it comes under the GST.
- Business process change
In last decade, we easily used our bank accounts, even while traveling and also use the card around the world. Now, under the GST, you have to define the location of a service supply as it is very important to do that. Thus, if a bank has registration in 15 states, it has to register itself in other states and union territories too.
To conclude the article, GST model came under action to transform the Indian taxation system. There is certain work still to be done under the banking and financial sectors to promote efficient working.