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Talks on “GST Implementation” began in India way back form year 2000 and post gestation for around 16 long years; finally the day of 8th August 2016 saw the birth of “Goods And Service Tax Bill”. Among several initiatives which could spur up India’s GDP, GST implementation alone brags for contributing 2% rise.

Service Sector accounts for around 53% of India’s GVA and among the Service Sectors, Financial Services is one of the Key Contributor. Several economies like those of Singapore, Canada, New Zealand, Australia, to name a few, have largely exempted Financial Services from applicability of GST. However in India the GST regime has not excluded Financial Sector, consequently the sector shall witness its own challenges in making the needed representations which finally should enable it to maintain or better its position as contributor to India Growth Story.

Jubilant of spectacular tomorrow, should certainly not cloud the vision for today especially of key stakeholders in “Financial Sector”. These are not words to deter but surely the words to caution and awaken the executives in “Financial Sector”, enabling them to steer their enterprise and reap maximum rewards by carefully making needed changes in their functioning and operations. Below are key aspects, which the author merits to highlight:

Account Linked Financial Services (ALFS):

ALFS shall be taxed in the state where the recipient of the service is located. In contemporary digital and fluid India the identification of state of recipient of service would surely not be an easy task, especially when we invariably see several professionals migrating cities in search of better prospects causing the bank to have four addresses namely permanent address, current address, address of communication and KYC address.

Back office:

To reap the advantage of cheaper human resource, several banks and financial institutions have evolved with structures where batteries of operational work force execute tasks and cater customers from several cities like Hyderabad, Chennai, Goa etc, with their respective corporate offices in some other state. While this is certainly an efficient cost salvage strategy, it surely merits tax teams of these entities to mull on mechanism by which they could substantiate the tax levies in respective states.

Non Account Linked Services (NALS):

NALS will be taxed in the state of service provider. This could particularly be a challenge for small enterprise who spread geographically to increase their presence but factually many of their outlets in remote places merely act as transaction collecting center and actual processing and execution of the transaction happens at back office located in some other state. (Readers may refer to Q17 on Pg 240 of FAQ on GST released is Sep 16)


Assessments of service provider will be done by multiple state regulators based on the presence of service provider in different states. This could be a challenge, as the Banks and NBFC would need to substantiate their stances in respect of chargeability in respective state and rationale used in utilizing input credits in different states.

Free Services:

Any service given in course of furtherance of business inspite of being without any consideration will still attract the levy of GST. Consequently Banks and NBFC should identify the output tax liability that will accrue on host of services, which they currently are tagging, to be free.

Lease Transactions:

Operating Lease would be considered as service and Finance lease would be considered as goods. This is stark different from current provision where finance lease transactions are liable to both, VAT and Service Tax, and ordinarily operating lease transactions attract VAT. Further, currently VAT is not payable on import of assets on lease basis, while leasing of an asset from outside India, will be liable to IGST

Each of above aspect will particularly be important when at macro level organizations identify impact on:

  1. Their cash flow post considering state level taxes.
  2. Documentation that entity would be needed to maintain to substantiate the taxability in particular state or input tax for a particular state especially when these are subjected to assessments by regulators of different states.
  3. Tax structure for each of the financial products and schemes that entities float especially from perspective of free services which will still attract taxes and if not properly planned could cause blockage of cash and increase cost of funding.
  4. System changes and control that the entity needs to implement to ensure compliance with minimal cost outflow. This particularly should be monitored from perspective of transaction systems and financial systems (especially where entities have different systems for front end and back end).
  5. Procurement strategy, particularly where significant input credits could potentially be utilized but go drain due to non-registration in respective states.
  6. Input Tax credit reversals would no longer be applicable especially when there are no non-taxable supplies.

Meticulous examination and modelling considering each of above points could enable Banks and NBFCs to cause minimal increase in pricing of their current services and at the same time ensure compliance to GST regime.

The author is a Senior Financial Management & Control Professional with nearly two decades of comprehensive industrial experience and can also be reached at


Published by

CA.Rajeev Joshi (CA,CISA,DISA)
Category GST   Report

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