New Delhi: A number of private banks could discontinue offering domestic money deposit services from their banking correspondents (BC) fearing the levy of goods and services tax (GST) on these agents would make these services unviable.
This could dent government efforts to provide banking services in the hinterland where banking correspondents provide doorstep banking.
Several banks have already communicated their latest plans to their banking correspondent service providers while others are expected to pass on the tax, said an official with one such BC service provider.
Since BC service fees are capped, this would mean they would get lower amount for cash services making the service unviable.
“We have learnt that banks will be closing the domestic money deposit services for a week from Tuesday to see the impact and if required, add the GST amount on top of the 1.50% fee @ 0.27% so that the intended cost of GST is passed to the end customer to address issues raised by tax authorities,” said Anand Kumar Bajaj Founder and CEO of PayNearby, which serves 22% of Aadhaar Enabled Payment Services in India.
BCs do not get any remuneration from banks as they are not providing core banking services but digital financial services which allows a customer to access or deposit money into their account with any bank.
Therefore, BCs charge fees for this value addition from the customer in addition to the fees charged by the bank. Under RBI guidelines, the total amount charged to the end customer is fixed by banks and BCs at maximum overall fee 1.5% (inclusive of all applicable taxes) of the amount remitted.
The issue arose after the tax department in Mumbai sent show cause notices to some private banks alleging tax evasion on the domestic money transfer services.
Tax authorities contended the banks were not paying GST on the amount retained by correspondents in cash from the fee charged to the customer and only on the balance that is passed on to the bank.
Two, individual turnover of BCs is far below the GST turnover threshold of Rs 20 lakh. “The present tax structure discourages the said nation-building effort by imposing a cumulative tax of about 27% GST on the various financial inclusion services being provided by BCs deliver various government programmes and digital financial services to the poor and thus help government achieve the objective of financial inclusion and PMJDY,” said Anand Shrivastav, chairman, BCFI.
“When so many products and services meant for low income customers are being exempted from GST, then GST for financial transactions should also be nil for low income customers,” said Abhishek Sinha, managing director, EKO India.
GST Collections Pick Up Pace, Rise to Rs 94,442 crore in September
New Delhi:The goods and services tax (GST) collections picked up pace in September after rate cuts in July dented collections in August. The collection in September was Rs 94,442 crore compared to Rs 93,690 crore in August, the finance NSE 0.54 % ministry said.
The GST Council had approved reduction in the rate of tax on a number of consumer items such as washing machines, refrigerators etc from 28% to 18% effective July 27. The monthly collections relate to the sales in the previous month i.e. tax paid in September is for goods sold and services provided in August. Sixty seven lakh GST returns were filed in September, same as that in August.
The GST revenues have been below the government’s estimate of about Rs 1 lakh crore a month.
“An increase in GST collections despite rate cuts on various products brings a gleam for the future trend expectations as well,” said Abhishek Jain, tax partner at EY India.
“The possible reason for this could be the various anti-evasion measures implemented by the government and the related impact of this entailing businesses to refrain from any tax evasion activities.”