Banks Want Central Registration, IGST On Transactions

Seeking centralised registration under the Goods and Services Tax regime, banks have asked the Finance Minister to bring them under Integrated GST as they provide complex inter-state services, according to an official document reviewed by BloombergQuint.

States want banks to register separately for each jurisdiction and have warned that a relief to one sector would only lead to more such demands.

IGST will be levied by the Centre on inter-state transfer of goods and services, and shared with the state where the goods and services are consumed. Currently, banks pay service tax to the Centre.

According to the document, the Indian Banks' Association has suggested that a single registration with the Centre will help simplify taxing banking transactions.

Taxing a transaction will become complicated if a bank is headquartered in Mumbai, the customer is based in Delhi but makes a payment in Chennai, an IBA official is quoted as saying in the document.

Real-Time Information On Transactions

Another problem that may arise is to determine in real time whether a customer made a transaction through an ATM in the state where he/she holds the account or another jurisdiction, the document said. Retrieving the place of transaction in real time will be difficult given the large volume of transactions and slow down the information technology system, the banks have said.

As banks' operations are spread across many states, claiming credit for tax paid on input costs across the three categories – IGST, central and state GST – will not be feasible if registration and returns were to be filed state-wise, banking secretary Anjuly Chib Duggal is quoted as saying.

A suggestion was made during the GST Council's meeting on January 3 that at the end of a month, all transactions could be segregated, and business-to-business and business-to-consumer transactions be simplified to transfer tax to the destination state.

“…That's an administrative issue (centralised registration)… (and) doesn't have to do anything with the legal drafts of the legislation on which the council will eventually..., after it (council) finishes its current work, take a view,” Finance Minister Arun Jaitley said on January 4.

West Bengal Finance Minister Amit Mitra, according to the document, said it would be advisable that multi-state operators in the services sector are registered in each jurisdiction, just like in case of goods. Any exemption given to one sector would lead to others demanding similar relief, Mitra said.

Mitra is also quoted as saying that even for charging IGST, the place of final transaction will have to be identified to transfer tax to the destination state. Tamil Nadu agreed with West Bengal's assertion.

Possible Solutions

Two things determine whether a bank has to pay IGST or Central GST+ State GST -- the location of a supplier from where the bank is providing services and the place of supply (address of the recipient), Sumit Lunker, partner, indirect tax (financial services) at PricewaterhouseCoopers told BloombergQuint.

Identifying the place where e-payments are made will be difficult, which will make levying GST complex, he said.

An alternative to centralised or state registration could be to recognise one of the locations, account or home branch, as the place from where banking services are provided, Lunker said.