Banking: Stress for Bankers, Not for You

Banking: Stress for Bankers, Not for You
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As an individual, you have noth- ing to worry about as far as your savings go. There are no indirect taxes like Excise, VAT or Service Tax levied on your principal or interest earnings. The only tax payable on such earnings is income tax, a direct tax, which has nothing to do with the new indirect tax regime to be ushered in on July 1, 2017.

Similarly, tax is not payable on interest charges paid by you on a loan. Whether it be a car, home or personal loan, the interest payable is exempt from tax. However, any fee paid by you while taking a loan, as processing charge or facilitation fee or any other service charge, while attract a higher tax rate of 18% under the new regime vis-à-vis 15% now. So, in other words, these charges will likely make you poorer by 3%.

You will also pay 3% more tax on charges levied for use of ATMs and other transaction facilities. Online payment service providers will also in crease taxes on their charges by 3%, thus increasing costs for online sellers. This will likely push ecommerce players to adjust discounts to recover the increase in payment gateway costs. But even so, the overall impact of such increase will only be fractional on most transactions and won’t really impact your finances in any significant way.

The situation is not quite the same for banks. For banks, GST is likely to usher in a whole new world of com- pliances. Till now, banks used to centrally manage tax compliance. Start- ing July 1, banks will need to register separately in each State where they have branches and ensure compliance by their arms in every State. What will complicate things further for banks is that GST is based on the supply concept, therefore the location of where the service is supplied will be key to determination of tax liability in each State. Given the digital nature of bank- ing today, this is bound to pose com- plications. The costs of complying will also rise in the short-term. How banks cope with this only time will tell.

Banks are already reeling under the pressure of non-performing assets (NPAs) and if the cost of compliance with GST increases their burden in any significant way, they are bound to look for ways to pass on the additional cost to customers.

So, while there is likely to be very minimal impact on the finances of in- dividuals directly from the implementation of GST in banking, how the effects finally trickle down into service charges of banks in the coming months is tough to tell. And in any case, there is little you can do to plan for what will follow. It, therefore, makes sense to keep your financial assets intact and wait for the impact to unfold.

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