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Banks as financial institutions emerged in the nation after the arrival of the British in India. The oldest bank, which is still in existence is the State Bank of India, originally started as Bank of Calcutta. Among the plethora of activities that a bank performs its services acquire prime importance for the masses. GST is set to roll out on 1st of July. This is bound to create an upheaval in the existing systems and pattern.
From among the many services that banks provide, some are centralised (Ex: Demat Account, bigger home loans, wealth management services, etc.) while there are others that are localised to branches (Ex: Savings account, Personal loan, OD etc.). Other than these banks also provide different types of services to customers like Debit Card, Credit Card, NEFT, RTGS, IMPS, Funds Transfer, Demand Draft, Internet banking, Cheque Clearance, Demat Account, Wealth Management Services, Home Loans, Personal Loan, etc.
There are some services provided by the Bank Head office to branches, these services which were not taxable till date may become taxable under the GST. Upgrade of the IT systems of banks is needed to meet all these requirements related to multiple registrations, compliance needs, determining the point of supply of services and Input Service distribution. As of now, the power to levy and collect Service Tax on all services is with the Centre. With the introduction of GST, the States would also get the authority to levy GST on services.
Thus, there would be two levies on the same activity, namely Central GST (CGST) and State GST (SGST). These will be levied and administered by the Central Government and State Governments respectively.
In the case of interstate supply, several activities of banks are currently exempt from service tax (Ex: Fund based activities like interest payable on deposits/savings bank accounts and loans disbursed) these would now be covered by GST unless otherwise exclusively exempted.
These changes are a necessary evil for the banks and financial institutions as it would be impossible for them to value services provided by one branch to another and then pay GST for that.