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1. INTRODUCTION AND BACKGROUND The introduction of Goods and Services Tax (GST) on July 1, 2017, revolutionized India's indirect tax structure, creating significant implications for the banking sector. This transformation from the previous service tax regime to GST has fundamentally altered how ban
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FAQ :
Banks face challenges due to their diverse service portfolios, extensive branch networks requiring state-wise registration, high transaction volumes, a mix of taxable and exempt services affecting Input Tax Credit (ITC) calculations, and complex inter-branch transactions.
Recent updates include CBIC Circular No. 245/02/2025-GST clarifying that penal charges are not subject to GST, and that GST exemption for RBI-regulated Payment Aggregators applies only to settlement functions for transactions up to ₹2,000. An RBI Circular also influenced GST treatment by instructing banks to replace penal interest with penal charges.
Banks can choose between availing only 50% of eligible ITC on inputs, capital goods, and input services (Section 17(4) Option), or following normal ITC rules with proportionate reversal for exempt supplies (Standard Proportionate Method).
Key banking services under RCM include legal services from advocates, services from directors, recovery agent services, GTA services, and import of services like overseas advisory or technological services.
For account-based services, it's the recipient's location as per bank records. For non-account services, it's the recipient's location or supplier's location if unavailable. For fixed establishment services, it's where performed, and for banking software, where used or accessed.
Banks must file GSTR-1 for outward supplies monthly by the 11th, GSTR-3B (summary return) monthly by the 20th, and GSTR-9 (annual return) by December 31st following the financial year. ITC-04 is also relevant for job work.
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