UNIVERSITY OF MUMBAI

PROJECT REPORT

ON

“A STUDY OF GST IN BANKING SECTOR”

SUBMITTED BY

DEVULAPALLY PRASANNA RAMAKAR

THE AWARD OF THE DEGREE OF

BACHELOR OF BANKING & INSURANCE (B&I) SEM-VI

EXAMINATION NO:-

ACADEMIC YEAR 2019-20

GUIDED BY

PROF.CHARMI GONDALIYA

PADMASHRI ANNASAHEB JADHAV BHARATIYA SAMAJ UNNATI MANDAL’S

B.N.N. COLLEGE, BHIWANDI

DIST. THANE 421302

1
 DECLARATION

I, Miss. DEVULAPALLY PRASANNA RAMAKAR, Exam

No:____________ Student of B.N.N College, Bhiwandi of T.Y.B.Com
(BACHELOR OF BANKING & INSURANCE), Semester VI, hereby
declare that I have completed project on “A STIDY OF GST IN
BANKING SECTOR IN BHIWANDI” is a record of independent
research work carried by me during the academic year 2019-20 under the
guidance of PROF.CHARMI GONDALIYA The information submitted is

true and original to the best of my knowledge.

DEVULAPALLY PRASANNA RAMAKAR

2
Estd. June 1960

SELF-FUNDED COURSES
“A” NAAC Accredited

“BEST COLLEGE AWARD 2018-2019”

CERTIFICATE
This is to certify That DEVULAPALLY PRASANNA RAMAKAR, Seat

No.:___________of T.Y.B.Com (BACHELOR OF BANKING &

INSURANCE), B.N.N College, Semester VI (Academic Year 2019-20) has
successfully completed the project entitled “A STUDY OF GST IN
BANKING SECTOR IN BHIWANDI” and submitted the project report in
partial fulfillment of the requirement for the award of the Degree of
T.Y.Bcom (Banking and Insurance) of University of Mumbai.

Prof. Charmi Gondaliya Dr. Kalpana Patankar Jain/ Dr. Ashok. D.Wagh
Dr. Vikas Ubale
(Project Guide) (Co-ordinated) (Principal)

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Examiner: -__________
Date: -__________

College Seal

ACKNOWLEGMENT

To list who all have helped me is difficult because they are so numerous and the
depth is so enormous. I would like to acknowledge the following as being
idealistic channels and fresh dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance
to do this project. I would like to thank my Principal, Dr. Ashok D.Wagh for
providing the necessary facilities required for completion of this project. I take
this opportunity to thank our Co-ordinators, Dr. Kalpana Patankar and Dr.
Vikas Ubale for their moral support and guidance. I would also like to express my
sincere gratitude towards my project guide Prof. Charmi Gondaliya whose
guidance and care made the project successful.

I would like to thank my College Nirlon Library, for having provided various
reference books and magazines related to my project.

Lastly, I would like to thank each person who directly or indirectly helped me in
the completion of the project especially my parents and peers who supported me
throughout my project.

DEVULAPALLY PRASANNA RAMAKAR

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 INDEX

SR. NO. NAME OF THE TOPIC PAGE. NO.

1 INTRODUCTION 6

2 LITERATURE REVIEW 61

3 RESEARCH METHODOLOGY 63

4 DATA ANALYSIS, INTERPRETATION 64-73

AND PRESENTATION

5 CONCLUSION 75

➢ BIBLIOGRAPHY 76

➢ ANNEXURE 77-78

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INTRODUCTION
With the unanimous approval of all the members of the Parliament, GST Bill 2016
leaves a mark on the history of India.

It has changed the indirect tax structure of the nation, taking it towards a single tax
system. Goods and Services Tax (GST) have replaced the existing central and state
taxes levied bythe government. It has covered everything including manufacturing,
sale or consumption of goods and services.

All the authority to administer and levy GST will rest with only one body, the Union
Government. One tax system will reduce the tax evasion from the country, giving rise
to transparency. Additionally, elimination of inter-state taxes will decrease the
procedural compliance and paperwork to a great extent. The consumers will be most
benefitted by free movement of goods across the nation and reduction in the tax
burden.

The successful implementation of the Goods and Service Tax will be a significant
phase in India. Overall it can be said that GST have a substantial impact on the entire
working of the industries in the nation.

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What is GST?
Goods and service tax (GST) is a single rate of indirect tax to be applied in the
country. It subsumes all the central and state taxes levied presently in the country into
one single tax rate. In India, GST Bill was first introduced in 2014 as The
Constitution (122nd Amendment) Bill. This got an approval in 2016 and was
renumbered in the statute by Rajya Sabha as The Constitution (101st Amendment)
Bill, 2016.
India being a federal republic, GST will be concurrently levied at Central (CGST) and
state
(SGST) level. The Union will prepare and implement a common base for both the
levels. Destination principle will be considered as a basis for the levy for CGST and
SGST. Hence, exports will become zero-rated and import taxes will equalise with
domestic goods and services taxes. An Integrated Goods and Service Tax (IGST) will
be imposed on inter-state supplies in the country. IGST will be a sum of CGST and
SGST of the relevant state. GST council will be formed for solving all the issues and
recommendations relating to GST.

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Also, an additional tax of 1% will be levied by the Centre for the supply of goods over
and above IGST, assigning the income earned to the origin states.
For an efficient and fruitful implementation of GST, the government will bear the
losses incurred by the states and provide with compensations for five years. GST will
reduce the administrative complications and simplify the indirect tax system in India.
It will result in a significant change, creating a single national market under one tax

procedure.

HISTORY OF GST
When did GST start?
Several countries have already established the Goods and Services Tax.
In Australia, the system was introduced in 2000 to replace the Federal
Wholesale Tax. GST was implemented in New Zealand in 1986. A
hidden Manufacturer’s Sales Tax was replaced by GST in Canada, in the
year 1991. In Singapore, GST was implemented in 1994. GST is a value-
added tax in Malaysia that came into effect in 2015.

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Journey of GST in India:
The GST was launched at midnight on 1 July 2017 by the President of India, and the
Government of India. The launch was marked by a historic midnight (30 June – 1
July) session of both the houses of parliament convened at the Central Hall of the
Parliament. Though the session was attended by high-profile guests from the business
and the
entertainment industry including Ratan Tata, it was boycotted by the opposition due to
the predicted problems that it was bound to lead for the middle and lower class
Indians.The opposition used to call it GABBAR SINGH TAX and leader of the
congress party Rahul Gandhi opposed it as strongly as he could. It is one of the few
midnight sessions that have been held by the parliament - the others being the
declaration of India's independence on 15 August 1947, and the silver and golden
jubilees of that occasion. After its launch, the GST rates have been modified multiple
times, the latest being on 22 December 2018, where a panel of federal and state
finance ministers decided to revise GST rates on 28 goods and 53 services. Members
of the Congress boycotted the GST launch altogether. They were joined by members
of the Trinamool Congress, Communist Parties of India and the DMK. The parties
reported that they found virtually no difference between the GST and the existing
taxation system, claiming that the government was trying to merely rebrand the
current taxation system.[citation needed] They also argued that the GST would
increase existing rates on common daily goods while reducing rates on luxury items,
and affect many Indians
adversely, especially the middle, lower middle and poorer income groups.

HISTORY OF GST IN INDIA:

2000: In India, the idea of adopting GST was first suggested by the Atal Bihari
Vajpayee Government in 2000. The state finance ministers formed an Empowered
Committee (EC) to create a structure for GST, based on their experience in designing
State VAT. Representatives from the Centre and states were requested to examine
various aspects of the GST proposal and create reports on the thresholds, exemptions,

9
taxation of inter-state supplies, and taxation of services. The committee was headed
by Asim Das Gupta, the finance minister of West Bengal. Dad Gupta chaired the
committee till 2011.
2004: A task force that was headed by Vijay L. Kelkar the advisor to the finance
ministry, indicated that the existing tax structure had many issues that would be
mitigated by the GST system.
February 2005: The finance minister, P. Chidambaram, said that the medium-to-long
term goal of the government was to implement a uniform GST structure across the
country, covering the whole production-distribution chain. This was discussed in the
budget session for the financial year 2005-06.

February 2006: The finance minister set 1 April 2010 as the GST introduction date.

November 2006: Parthasarthy Shome, the advisor to P. Chidambaram, mentioned

that states will have to prepare and make reforms for the upcoming GST regime.

February 2007: The 1 April 2010 deadline for GST implementation was retained in
the union budget for 2007-08.
February 2008: At the union budget session for 2008-09, the finance minister
confirmed that considerable progress was being made in the preparation of the
roadmap for GST. The targeted timeline for the implementation was confirmed to be
1 April 2010.
July 2009: Pranab Mukherjee, the new finance minister of India, announced the basic
skeleton of the GST system. The 1 April 2010 deadline was being followed then as
well.
November 2009: The EC that was headed by Asim Dasgupta put forth the First
Discussion Paper (FDP) , describing the proposed GST regime. The paper was
expected to start a debate that would generate further inputs from stakeholders.
February 2010: The government introduced the mission-mode project that laid the
foundation for GST. This project, with a budgetary outlay of Rs.1,133 crore,
computerized commercial taxes in states. Following this, the implementation of GST
was pushed by one year.
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March 2011: The government led by the Congress party puts forth the Constitution
(115th Amendment) Bill for the introduction of GST. Following protest by the
opposition party, the Bill was sent to a standing committee for a detailed examination.
June 2012: The standing committee starts discussion on the Bill. Opposition parties
raise concerns over the 279B clause that offers additional powers to the Centre over
the GST
dispute authority.
November 2012: P. Chidambaram and the finance ministers of states hold meetings
and set the deadline for resolution of issues as 31 December 2012.
February 2013: The finance minister, during the budget session, announces that the
government will provide Rs.9,000 crore as compensation to states. He also appeals to
the state finance ministers to work in association with the government for the
implementation of the indirect tax reform.
August 2013: The report created by the standing committee is submitted to the
parliament. The panel approves the regulation with few amendments to the provisions
for the tax structure and the mechanism of resolution.
October 2013: The state of Gujarat opposes the Bill, as it would have to bear a loss of
Rs.14,000 crore per annum, owing to the destination-based taxation rule.
May 2014: The Constitution Amendment Bill lapses. This is the same year that
Narendra Modi was voted into power at the Centre.
December 2014: India’s new finance minister, Arun Jaitley, submits the Constitution
(122nd Amendment) Bill, 2014 in the parliament. The opposition demanded that the
Bill be sent for discussion to the standing committee.
February 2015: Jaitley, in his budget speech, indicated that the government is
looking to implement the GST system by 1 April 2016.
May 2015: The Lok Sabha passes the Constitution Amendment Bill. Jaitley also
announced that petroleum would be kept out of the ambit of GST for the time being.
August 2015: The Bill is not passed in the Rajya Sabha. Jaitley mentions that the
disruption had no specific cause.

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March 2016: Jaitley says that he is in agreement with the Congress’s demand for the
GST rate not to be set above 18%. But he is not inclined to fix the rate at 18%. In the
future if the Government, in an unforeseen emergency, is required to raise the tax rate,
it would have to take the permission of the parliament. So, a fixed rate of tax is ruled
out.
June 2016: The Ministry of Finance releases the draft model law on GST to the
public, expecting suggestions and views.
August 2016: The Congress-led opposition finally agrees to the Government’s
proposal on the four broad amendments to the Bill. The Bill was passed in the Rajya
Sabha.
September 2016: The Honourable President of India gives his consent for the
Constitution Amendment Bill to become an Act.
2017: Four Bills related to GST become Act, following approval in the parliament and
the
President’s assent:
Central GST Bill
Integrated GST Bill
Union Territory GST Bill
GST (Compensation to States) Bill
The GST Council also finalised on the GST rates and GST rules. The Government
declares that the GST Bill will be applicable from 1 July 2017, following a short delay
that is attributed to legal issues.

TAX RATES OF GST:

Goods and services are divided into five different tax slabs for collection of tax - 0%,
5%, 12%, 18% and 28%. However, petroleum products, alcoholic drinks, and
electricity are not taxed under GST and instead are taxed separately by the individual
state governments, as per the previous tax system. There is a special rate of 0.25% on
rough precious and semi-precious stones and 3% on gold. In addition a cess of 22% or
other rates on top of 28% GST applies on few items like aerated drinks, luxury cars
12
and tobacco products. Pre-GST, the statutory tax rate for most goods was about
26.5%, Post-GST, most goods are expected to be in the 18% tax range

GST COUNCIL:
GST Council is the governing body of GST having 33 members, out of which 2
members are of canter and 31 members are from 28 state and 3 Union territories with
legislation. The council contains the following members :
(a) Union Finance Minister (as chairperson)
(b) Union Minister of States in charge of revenue or finance (as member)
(c) the ministers of states in charge of finance or taxation or other ministers as
nominated by each states government (as member).
GST Council is an apex member committee to modify, reconcile or to procure any
law or regulation based on the context of goods and services tax in India. The council
is headed by the union finance minister Nirmala Sitharaman assisted with the finance
minister of all the states of India. The GST council is responsible for any revision or
enactment of rule or any rate changes of the goods and services in India.

Decisions taken by GST Council

Some of the major decisions taken by the GSTC so far are:
➢ There would be four tax rates under the GST regime, i.e., 5%, 12%, 18%, and
28%.
Some goods and services were also classified as exempt from tax.
➢ A cess above the peak rate of 28% would be levied on certain sin and luxury
goods.
➢ The administrative control over 90% of taxpayers with turnover less than
Rs.1.5 crore would be with the State tax administration. 10% of control would
be with the Central
tax administration.
➢ Administrative control over taxpayers having turnover above Rs.1.5 crore
would be equally divided between the State and Centre tax administration.
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 ➢ Goods and Services Tax Network
➢ Goods and Services Tax Network (GSTN) was set up as a private company in
2013 by the Government under Section 25 of the Companies Act, 1956. GSTN
is expected to offer the front-end services of registration, payment, and returns
to taxpayers. It would also develop back-end technical modules that will be
utilised by 25 states that
have opted in.

➢ GSTN has also identified 34 IT and financial technology companies and

tagged them as GST Suvidha Providers (GSPs). These organizations will
develop applications that
will be used by taxpayers when they interact with GSTN.

FEATURES OF GST:
➢ The Union Government will be vested with all the powers to make the rules and
regulations in the matter of supplies in the system of inter-state trade. For intra-state
transactions (including
services) the right to levy GST will be with states.
➢ GST will contain current Central and state-level taxes in itself. The Central taxes
subsumed will include service tax, excise duty, additional excise duty, additional
customs duty (CVD) and special additional duty. State VAT, entertainment tax,
central sales tax, luxury tax, entry
tax (other than Octroi) and purchase tax are state level taxes to be included in GST.
➢ Alcohol for human consumption will be kept away from GST.
➢ Integrated Goods and Service Tax (IGST) will be levied by the Centre on the inter-
state goods
and services.
➢ Application’s of GST on petroleum and petroleum products might happen.
➢ Basic customs duty will be levied on goods imported.
➢ Provisions relating to removal of Octroi or entry tax across India will be made.
➢ GST Council comprising of Central and state ministers will administer the GST in
India.
➢ The Constitution (101st Amendment) Bill
14
 ➢ The Bill introduces the Goods and Service Tax (GST) in the Constitution of India. It
highlights the structure of the GST to be implemented. The key features presented in
the Bill are scope, levy, construction of GST Council, additional tax on goods supply
and compensation given to the states.

Key features of the GST regime

The GST system is characterized by the following features:
➢ GST is applicable on the “supply” of services or goods as opposed to the earlier
concept of
taxation on goods manufacture, sale of goods, or service provision.
➢ GST is a destination-based tax structure unlike the origin-based structure that existed
previously.
➢ CGST, IGST, and SGST/UTGST are levied at rates that would be mutually agreed
upon by
the states and Centre.
➢ GST will replace the central taxes mentioned below:
➢ Duties of Excise (medicinal and toilet needs)
➢ Central Excise Duty
➢ Additional Duties of Excise (Goods of Special Importance)
➢ Additional Duties of Customs (CVD)
➢ Service Tax
➢ Special Additional Duty of Customs(SAD)
➢ Additional Duties of Excise (Textiles and Textile Products)
➢ Ceases and surcharges
➢ GST will subsume the following state taxes:
➢ Central Sales Tax
➢ Entry Tax
➢ State VAT
➢ Luxury Tax
➢ Purchase Tax
➢ Entertainment Tax, except that levied by local entities
➢ Taxes on lotteries and gambling
➢ Taxes on advertisements
➢ State cesses and surcharges

15
 ➢ Taxpayers with annual turnover of Rs.20 lakh is exempt from GST. For special
category states, this cut-off is Rs.10 lakh. An option of compounding is available to
small-scale taxpayers with annual turnover of Rs.50 lakh or below. The choice of
threshold exemption
and the compounding scheme are optional.
➢ Input credit of CGST shall be used only for paying CGST on the output. Similarly,
input credit of SGST/UTGST will be used only for the payment of SGST/UTGST.
Therefore, the two channels of input tax credit cannot be cross-utilised, except for the
payment of IGST for inter-state supplies.

BENEFITS OF GST:
Key benefits of the GST are detailed below:
➢ As mentioned above, the GST system will create a common
national market that boosts foreign investment.
➢ The cascading effect of taxation will be mitigated.
➢ There will be uniformity in laws, rates of tax, and procedures
across
states.
➢ The GST regime is expected to boost manufacturing activities and
exports. This would, in turn, generate more employment and lead
to the growth of the economy.
➢ Indian products would be more competitive in the international
markets.
➢ The GST system is likely to improve the overall investment
climate in
India.
➢ Uniformity in the rates of SGST and IGST will reduce tax evasion
to a large extent.
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 ➢ The average sales burden experienced by companies is expected to
come down, thereby increasing consumption and boosting
subsequent production of goods.
➢ GST is a simpler system of taxation with smaller number of
exemptions.
➢ There are automated and simplified methods for processes such as
registration, refunds, returns, tax payments, etc.
➢ All interactions will be handled by the common GSTN website.
➢ The input tax credit process will be more accurate and transparent,
as electronic matching will be performed.
➢ The final price of most goods will be lower when taxation is at the
new GST rates. There will also be a seamless input tax credit flow
between the manufacturer, retailer, and supplier of service.
➢ A huge segment of small-scale retailers may be either exempt from
tax or may benefit from low tax rates based on the compounding
scheme. Consumers will further benefit if purchases are made from
these small
retailers.

OBJECTIVES OF GOOD AND SERVICE TAX:

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GST is proposed to fulfill the following objectives:

➢ GST would help to eliminate the cascading effects of production and

distribution cost of goods and services.

➢ This would help to increase GDP and then to economic condition of the
country.
➢ GST would eliminate the multiplicity of indirect taxation and streamline all
the indirect taxes which would be beneficial for manufacture and ultimate
consume

➢ GST would be able to cover all the shortcomings of existing VAT system and
hopefully serve the economy health.

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TYPES OF GOOD AND SERVICE TAX
Based on the kind of transaction, there are four types of GST, viz. Central Goods and
Services Tax (CGST), State Goods and Services Tax (SGST), Integrated Goods and
Services Tax (IGST), and Union Territory Goods and Services Tax (UTGST).
 Central Goods and Service Tax.
 State Goods and Service Tax.
 Integrated Goods and Service Tax.
 Union Territory Goods and Service Tax.

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 1. Central Goods and Services Tax - CGST is charged on the intra state supply
of products and services. The Central Government levies CGST and it is
governed by the Central Goods and Services Tax Act. CGST has effectively
replaced all the previous Central taxes such as Central Excise Duty, Customs
Duty, Service Tax, SAD, CST, etc. It is charged to taxpayers along with SGST.
The rate at which CGST is charged is usually the same as the SGST rate, and the
revenue collected under CGST is remitted to the Central Government.

2. State Goods and Services Tax - SGST, like CGST, is charged on the sale of
products or services within a state. The State Government is responsible for the
levy of SGST. This tax replaces all the previous taxes such as Entry
Tax, Value Added Tax, Entertainment Tax, State Sales Tax, cesses, and
surcharges. The revenue collected under SGST is remitted to the State
Government.

3. Integrated Goods and Services Tax - IGST is charged on inter-state

transactions of products and services. It is also levied on imports. The Central
Government collects IGST and distributes it among states. IGST is levied when
goods or services are transferred from one state to another. The tax was
implemented so that states would only have to deal with the Union Government
rather than dealing with each state.

4. Union Territory Goods and Services Tax - UTGST is levied on the supply of
products and services in any of the Union Territories in the country, viz.
Andaman and Nicobar Islands, Daman and Diu, Dadra and Nagar Haveli,
Lakshadweep, and Chandigarh. UTGST is levied along with CGST.

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TAX STRUCTURE BEFORE GST
1) Before the implementation of GST, taxation laws between the Centre and
states were clearly demarcated. There were no overlaps between the fiscal
powers, whatsoever. The Centre would levy tax on goods manufacture, except
alcohol for consumption,
narcotics, opium, etc.
2) The states had the power to charge tax on the sale of goods.
3) The Centre would levy the Central Sales Tax that was collected by the
originating
states.
4) The Centre was also levying service tax on all types of services.
5) Additionally, the Centre was charging and collecting additional duties of
customs on goods that were imported into or exported from India. This tax
was levied in addition to the Basic Customs Duty. This additional duty of
customs is referred to as Countervailing Duty (CVD) and Special Additional
Duty (SAD) and it counter
balances excise duties, state VAT, sales tax, and other such taxes.
6) The introduction of the GST regime made amendments to the Constitution so
that the Centre and states are empowered at the same time to levy and collect
GST. This concurrent jurisdiction of the states and Centre also requires an
institutional mechanism that ensures joint decisions are taken about the
structure and operation of
GST.
7) Constitution (One Hundred and First) Amendment Act, 2016
8) In order to address prevalent issues in taxation, the Constitution 122nd
Amendment
Bill was put forth in the 16th Lok Sabha on 19 Dec 2014.
9) The Bill suggests levy of GST on all goods and services, except alcohol that
humans
consume.

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 10)The tax is levied as Dual GST by the Centre and states/union territories. The
component levied by the Centre is Central Tax - CGST, while that levied by
the state is State Tax - SGST. The tax levied by union territories is Union
Territory Tax -
UTGST.
11)The Centre would levy the GST on inter-state trade or imports of services and
goods. This tax is referred to as Integrated Tax - IGST.
12)The Central Government will also levy excise duty on tobacco products, in
addition to GST.
13)The tax on five petroleum products, i.e., high speed diesel, crude, petrol,
natural gas, and Aviation Turbine Fuel (ATF) will be outlined later after a
decision is made by the GST Council.

14)September 2016: A Goods and Services Tax Council (GSTC) was created by
the
union finance minister, revenue minister, and ministers of state to take
decisions on GST rates, thresholds, taxes to be subsumed, exemptions, and
other features of the taxation system. The state finance ministers mentioned
that the EC would be a platform for states where there would be discussions of
their regional issues. The GST Council is a separate entity that would oversee
the implementation of the GST system.

TAXES WHICH ARE SUBSUMED UNDER GST

GST is commonly described as indirect, comprehensive, broad based consumption

Tax. The Dual GST which would be implemented in India will subsume many
consumption taxes. The objective is to remove the multiplicity of tax levies thereby
reducing the complexity and remove the effect of Tax Cascading. The objective is to
subsume all those taxes that are currently levied on the sale of goods or provision of
services by either Central or State Government. Subsumation of large number of taxes
and other levies will allow free flow of larger pool of tax credits at both Central and
State level.
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1. PRINCIPLES OF TAX SUBSUMATION
The various Central, State and Local levies were examined to identify their possibility
of being subsumed under GST. While identifying, the following principles were kept
in mind:

 Taxes or levies to be subsumed should be primarily in the nature of indirect taxes,

either on the supply of goods or on the supply of services.
 Taxes or levies to be subsumed should be part of the transaction chain which
commences with import/ manufacture/ production of goods or provision of
services at one end and the consumption of goods and services at the other.
 The subsumation should result in free flow of tax credit in intra and inter-State
levels.
 The taxes, levies and fees that are not specifically related to supply of goods &
services should not be subsumed under GST.
 Revenue fairness for both the Union and the States  individually would need to be
attempted.

2. CENTRAL TAXES TO BE SUBSUMED IN GST

On application of the above principles and various papers which have been released in
this regard, it is deduced that the following Central Taxes should be, to begin with,
subsumed under the Goods and Services Tax:

 Central Excise Duty (CENVAT)

 Additional Excise Duties
 The Excise Duty levied under the Medicinal and Toiletries Preparations (Excise
Duties) Act 1955
 Service Tax
 Additional Customs Duty, commonly known as Countervailing Duty (CVD)
 Special Additional Duty of Customs – 4% (SAD)
 Surcharges and Cesses levied by Centre are also likely to be subsumed wherever
they are in the nature of taxes on goods or services. This may include cess on
rubber, tea, coffee, national calamity contingent duty etc.

23
 Central Sales Tax to be phased out.

3. STATE TAXES TO BE SUBSUMED IN GST

Following State taxes and levies would be, to begin with, subsumed under GST:

 VAT / Sales tax

 Entertainment tax (unless it is levied by the local bodies)
 Luxury tax
 Taxes on lottery, betting and gambling
 State Cesses and Surcharges in so far as they relate to supply of goods and
services
 Octroi and Entry Tax
 Purchase Tax

IMPACT OF GST IMPLIMENTATION:

24
The successful implementation of GST will make a revolutionary impact on the
economy of India. It might benefit some, and some might have to change their
strategy to be successful. GST being one tax for Central and state will give rise to
transparency in the functioning of the nation. It will lead to ease of business
transactions and will reduce logistics costs across sectors. The impact of GST on
various industries can be observed as under:

Real estate: Including the industry of real estate within the ambit of GST will result
in less malicious acts in this sector. Tax evasion will be reduced as a consequence of
the same. GST being one tax will solve the present issue of collecting VAT on excise
duty. GST might have a negative impact by increasing the cost for the consumers in
case the output of real estate is exempted from it.

Tourism and hospitality: Presently, multiple taxes are levied by the Centre and
states for the tourism and hospitality industry. GST will replace all these taxes. GST
might change the input credit availability for services used to renovate and construct
the hotels and resorts. It is hoped that GST will simplify the procedures. The present
benefits from Foreign Trade Policy might not be available and that might increase the
costs.

Education: Currently, education sector enjoys many exemptions and benefits. It is

also a part of the negative list of services, excluding the industry from the service tax
ambit. If the exemptions are retained, similar situation is likely to continue in this
sector. However, for real benefits to this sector, the taxes to be paid on inputs must be
eliminated.

Financial Services: GST might result into increasing the cost of the banking and
financial services. A service tax of 15% is levied on financial services at present. With
the assumed GST tax rate of 18% to 20%, it can be said that services are going to get
expensive. A lot many compliance issues might also arise with the application of

25
GST. The banking sector recommends that GST must not cover financial and banking
services. It can be said that levy of GST on these services will be too challenging.

Hence, GST will arise as a transformative step, changing the whole indirect taxation

system of India.

GST RATE SLABS:

GST has been structured in a way that essential services and food items are placed in
the lower tax brackets, while luxury services and products have been placed in the
higher tax bracket.
The GST council has fitted over 1300 goods and 500 services under four tax slabs of
5%, 12%, 18% and 28% under GST. This is aside the tax on gold that is kept at 3%
and rough precious and semi-precious stones that are placed at a special rate of 0.25%
under GST.

A total of 81% of all the goods and services fall below or in the 18% tax slab. This
means 7 % of the items come under the exempted list, 14% of the items attract a 5%
tax, 17% of the items attract a 12% tax, and 43% of the items attract an 18 % tax slab,
while only 19% of the items fall under the highest slab of 28% in the new regime.
Below is a list of some of the products that will be a part of the respective slabs:

26
  Exempted GST Rate Slab (No Tax)
7% goods and services fall under this category. Some of these that are of
regular consumption include fresh fruits and vegetables, milk, butter milk,
curd, natural honey, flour, besan, bread, all kinds of salt, jaggery, hulled cereal
grains, fresh meat, fish, chicken, eggs, along with bindi, sindoor, kajal,
bangles, drawing and coloring books, stamps, judicial papers, printed books,
newspapers, jute and handloom, hotels and lodges with tariff below INR 1000
and so on.

 5% GST Rate Slab

14% goods and services fall under this category. Some of these include
apparel below INR 1000 and footwear below INR 500, packaged food items,
cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea,
spices, pizza bread, rusk, sabudana, cashew nut, cashew nut in shell, raisin,
27
 ice, fish fillet, kerosene, coal, medicine, agarbatti (incense sticks), postage or
revenue stamps, fertilizers, rail and economy class air tickets, small
restaurants, and so on.

 12% GST Rate Slab

Edibles like frozen meat products, butter, cheese, ghee, dry fruits in packaged
form, animal fat, sausages, fruit juices, namkeen, ketchup & sauces, ayurvedic
medicines, all diagnostic kits and reagents, cellphones, spoons, forks, tooth
powder, umbrella, sewing machine, spectacles, indoor games like playing
cards, chess board, carom board, ludo, apparels above INR 1000, non-AC
restaurants, business class air ticket, state-run lottery, work contracts and so on
attract a 12% GST. 17% of goods and services fall under this category.

 18% GST Rate Slab

43% of goods and services fall under this category. Pasta, biscuits, cornflakes,
pastries and cakes, preserved vegetables, jams, soups, ice cream, mayonnaise,
mixed condiments and seasonings, mineral water, footwear costing more than
INR 500, camera, speakers, monitors, printers, electrical transformer, optical
fiber, tissues, sanitary napkins, notebooks, steel products, headgear and its
parts, aluminum foil, bamboo furniture, AC restaurants that serve liquor,
restaurants
in five-star and luxury hotels, telecom services, IT services, branded garments
and financial services and so on attract an 18% GST.

 28% GST Rate Slab

19% of goods and services fall under this category. The rest of edibles like
chewing gum, bidi, molasses, chocolate not containing cocoa, waffles and
wafers coated with chocolate, pan masala, aerated water, personal care items
like deodorants, shaving creams, after shave, hair shampoo, dye, sunscreen,
paint, water heater, dishwasher, weighing machine, washing machine, vacuum
cleaner, automobiles, motorcycles, 5-star hotel stays, race club betting, private

28
 lottery and movie tickets above INR 100 etc. have been clubbed together
under the 28% GST slab.

TAXABLE PERSONS UNDER GST:

A taxable person under GST is anyone who is registered under GST or required to be
registered under GST. Various criteria’s like turnover, business activity or transaction
have been specified in the GST Act, which details persons liable to be registered
under GST. Further, any person having registration under Service Tax, VAT or
Central Excise on the date of GST coming into force will automatically be considered
a taxable person under GST.

GST Definition of Taxable Person- "The term “person” has been defined in Section
2(73) of
the GST Act as follows":
➢ An Individual
➢ A Hindu Undivided Family
➢ A Company
➢ A Partnership Firm
➢ A Limited Liability Partnership
➢ An Association of Persons or a Body of Individuals, whether incorporated or
not, in India or outside India
➢ Any Corporation Established by or under any Central, State or Provincial Act,
or a
Government Company
➢ Any body corporate incorporated by or under the laws of a country outside
India
➢ A co-operative society registered under any law relating to cooperative
societies
➢ A local authority
➢ Government
➢ Society as defined under the Societies Act, 1860
29
 ➢ Trusts Artificial judicial person, not falling within any of the above categories

The definition for a taxable person under GST is similar to the definition in the
existing Service Tax law. Its important to note that the definition for a taxable person
includes all kinds of judicial persons (artificial persons) also and not only natural
persons.

WHO NEEDS GST REGISTRATION:

The criteria for persons who should be registered under GST is provided under
Chapter 6 of the GST Act. As per the GST Act, the following persons should
mandatorily obtain GST registration:

 Aggregate Turnover Criteria

Any supplier of goods and/or services who makes a taxable supply with an
aggregate turnover of over Rs.20 lakhs in a financial year should mandatorily
obtain GST
registration. In special category states, the aggregate turnover criteria is set at
Rs.10 lakhs.

➢ Special Category States under GST

Currently, Assam, Nagaland, Jammu & Kashmir, Arunachal Pradesh,
Manipur, Meghalaya, Mizoram, Uttarakhand, Tripura, Himachal Pradesh, and
Sikkim are considered special category states. The National Development
Council composed of the Prime Minister, Union Ministers, Chief Ministers
and members of the Planning Commission determines the list of special
category states in India. Also, the decision to accorded special status to a State
is based on factors like: hilly and difficult terrain; low population density and
or sizeable share of tribal population; strategic location along borders with
neighbouring countries; economic and infrastructure backwardness and non-
viable nature of state finances.

30
  Mandatory GST Registration Criteria
Some taxable persons who do not qualify for GST registration under the
aggregate turnover criteria should mandatorily obtain GST registration if they
satisfy any of the following criteria:

➢ Persons making any inter-state taxable supply

Inter-state supply is supplying goods or services from one state to another.
Hence, any taxable person who is involved in supplying goods or services to
persons outside of the State should mandatorily obtain GST registration.

➢ Casual taxable persons making taxable supply

A casual taxable person refers to a person who occasionally undertakes supply
of goods and/or services and has no fixed place of business. An example of a
casual taxable person would be a fireworks shops setup during Diwali festival
time, selling fireworks temporarily.

➢ Persons required to pay tax under reverse charge

Under GST, for most goods and/or services, the liability for payment of tax
rests with the supplier. However, in some cases, the liability to pay tax (GST)
would rest with the recipient of the goods or services, instead of the supplier.
Such transactions are called reverse charge. Hence, any person (recipient of
goods or service) required to pay tax under reverse charge must mandatorily
obtain GST registration.

➢ Non-resident taxable persons making taxable supply

A non-resident taxable person refers to any person who occasionally supplies
goods or services to recipients in India with no fixed place of business or
residence in India. All non-resident taxable persons engaged in the supply of

31
 goods and services should mandatorily obtain GST registration, irrespective of
aggregate turnover criteria.

➢ Persons Required to deduct tax under GST

According to Section 51 of the GST Act, the Government may mandate a
department or establishment of the Central Government or State Government
or local authority or Governmental agencies or a category of persons to deduct
tax at the rate of 1% from the payment made or credited to the supplier, where
the total value under a contract, exceeds Rs.2.5 lakhs. Such persons should
mandatorily obtain GST registration and thus referred to as “deductor”.

➢ Persons who make taxable supply of goods or services on behalf of other

persons Any person who makes a taxable supply of goods or services on
behalf of other persons would include agents, brokers, dealers, etc., Such
persons should mandatorily obtain GST registration.

➢ Input Service Distributor

Input Service Distributor means a supplier of goods or services which receives
tax invoices for the receipt of input services and issues a prescribed document
for the purposes of distributing the credit of central tax, State tax, integrated
tax or Union territory tax paid on the said services to a supplier of taxable
goods or services.

➢ Electronic Commerce Operator

Electronic commerce refers to the supply of goods or service, including digital
products over a digital or electronic network. An electronic commerce
operator refers to any person who owns, operates or manages digital or
electronic facility or platform for electronic commerce. All electronic
commerce operators should mandatorily obtain GST registration, irrespective
of turnover.

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 ➢ Persons supplying online information and database access or retrieval services
(OIDAR)
Any person supplying online information and database access or retrieval
services from a place outside India to a person in India should mandatorily
obtain GST registration. Online information and database access or retrieval
refer to providing data, information, retrievable or otherwise, to any person, in
electric form through a computer network.

➢ Persons who supply goods or services through electronic commerce operators

Persons who supply goods or services through electronic commerce operators
may require to collect tax for acting on behalf of the supplier for providing
supplies. During these circumstances, the concerned person acting on behalf
should mandatorily obtain GST registration.

➢ Under GST, the Government can specify liable categories for taxation. If any
services provided by the electronic commerce operator falls under the
categories, the operator shall pay the amount as mentioned by the government.

➢ Persons Having Service Tax or VAT or Central Excise Registration

All person who, on the day immediately preceding the appointed day having a
service tax or VAT or central excise license under the existing law shall
register under GST. Hence, migration to GST applies for all taxable persons
having an existing
registration.

➢ Transferee or Successor of a Business

33
 Any person represents as a transferee or a successor of a business, carried on
by a person registered under GST shall register under GST with effect from
the date of such transfer or succession.

➢ Eligibility to Obtain GST Registration

Any person engaged exclusively in the business of supplying goods or
services that are not liable to tax under GST or wholly exempt from tax under
GST is exempt from obtaining GST registration.

➢ Also, an agriculturist, to the extent of supply of produce out of cultivation of

land is exempt from obtaining GST registration. Under GST, agriculturist
means an individual or a Hindu Undivided Family (HUF) who undertakes
cultivation of land:

➢ Involved in own labour .

Established the labour of family, or By servants on wages payable in cash or
kind or by hired labour under personal supervision or the personal supervision
of any member
of the family;

THE DESIGN OF INDIAN GST:

Concurrent dual model of GST: India has adopted dual GST model because of its
unique federal nature. Under this model, tax is levied concurrently by the Centre as
well as the States on a common base, i.e. supply of goods or services or both. GST to
be levied by the Centre would be called Central GST (Central tax / CGST) and that to
be levied by the States would be called State GST (State Tax / SGST). State GST
(State Tax / SGST) would be called UTGST (Union territory tax) in Union Territories

34
without legislature. CGST & SGST / UTGST shall be levied on all taxable intra-State
supplies.

The IGST Model: Inter-State supply of goods or services shall be subjected to

integrated GST (Integrated tax / IGST). The IGST model is a unique contribution of
India in the field of VAT. The IGST Model envisages that Centre would levy IGST
(Integrated Goods and Service Tax) which would be CGST plus SGST on all inter-
State supply of goods or services or both. The inter-State supplier will pay IGST on
value addition after adjusting available credit of IGST, CGST, and SGST on his
purchases. The Exporting State will transfer to the Centre the credit of SGST used in
payment of IGST. The person based in the destination State will claim credit of IGST
while discharging his output tax liability in his own State. The Centre will transfer to
the importing State the credit of IGST used in payment of SGST. The relevant
information will also be submitted to the Central Agency which will act as a clearing
house mechanism, verify the claims and inform the respective governments to transfer
the funds. The major advantages of IGST Model are:

a) Maintenance of uninterrupted ITC chain on inter-State transactions.

b) No upfront payment of tax or substantial blockage of funds for the interState
supplier or recipient.
c) No refund claim in exporting State, as ITC is used up while paying the tax.
d) Self-monitoring model.
e) Model takes ‗Business to Business‘ as well as ‗Business to Consumer‘
transactions into account.

Tax Rates: Owing to unique Indian socio-economic milieu, four rates namely 5%,
12%, 18% and 28% have been adopted. Besides, some goods and services are exempt
also. Rate for precious metals and affordable housing are an exception to ‗four-tax
slab-rule‘ and the same has been fixed at 3% and 1% respectively. In addition,
unworked diamonds, precious stones, etc. attracts a rate of 0.25%. A cess over the
peak rate of 28% on certain specified luxury and demerit goods, like tobacco and
tobacco products, pan masala, aerated water, motor vehicles is imposed to
35
compensate States for any revenue loss on account of implementation of GST. The
list of goods and services in case of which reverse charge would be applicable has
also been notified for compensation to States: The Goods and Services Tax
(Compensation to States) Act, 2017 provides for compensation to the States for the
loss of revenue arising on account of implementation of the goods and services tax.

Compensation will be provided to a State for a period of five years from the date on
which the State brings its SGST Act into force. For the purpose of calculating the
compensation amount in any financial year, year 2015-16 will be assumed to be the
base year, for calculating the revenue to be protected. The growth rate of revenue for
a State during the five-year period is assumed be 14% per annum. The base year tax
revenue consists of the states‘ tax revenues from: (i) State Value Added Tax (VAT),
(ii) central sales tax, (iii) entry tax, Octroi, local body tax, (iv) taxes on luxuries, (v)
taxes on advertisements, etc. However, any revenue among these taxes arising related
to supply of alcohol for human consumption, and five specified petroleum products,
will not be accounted as part of the base year revenue. A GST Compensation Cess is
levied on the supply of certain goods and services, as recommended by the GST
Council to finance the compensation cess.

E-Way Bill System: The introduction of e-way (electronic way) bill is a monumental
shift from the earlier ―Departmental Policing Model‖ to a ―Self Declaration Model‖.
It envisages one e-way bill for movement of the goods throughout the country,
thereby ensuring a hassle free movement for transporters throughout the country. The
e-way bill system has been introduced nation-wide for all inter-State movement of
goods with effect from 01.04.2018. As regards intraState supplies, option was given
to States to choose any date on or before 03.06.2018. All States have notified e-way
bill rules for intra-State supplies last being NCT of Delhi where it was introduced
w.e.f. 16.06.2018. New features in the e-way bill system have been introduced such
as the auto calculation of distance based on PIN codes for the generation of e-way bill
and blocking the generation of multiple e-way bills against one invoice.

36
Anti-Profiteering Mechanism: Implementation of GST in many countries was
coupled with increase in inflation and the prices of the commodities. This happened in
spite of the availability of the tax credit. This was happening because the supplier was
not passing on the benefit to the consumer and thereby indulging in illegal
profiteering. Any reduction in rate of tax or the benefit of increased input tax credit
should have been passed on to the recipient by way of commensurate reduction in
prices.

National Anti-profiteering Authority (NAA) has been constituted under GST by the
Central Government to examine the complaints of non-passing the benefit of reduced
tax incidence. The Authority shall cease to exist after the expiry of two years from the
date on which the Chairman enters upon his office unless the Council recommends
otherwise.10.6.2 The Authority may determine whether any reduction in the rate of
tax or the benefit of input tax credit has been passed on to the recipient by way of
commensurate reduction in prices. It can order reduction in prices, imposition of
penalty, cancellation of registration and any other decision as may deem fit, after
inquiry into the case.

Concept of Supply: GST would be applicable on supply of goods or services as

against the present concept of tax on manufacture of goods or on sale of goods or on
provision of services. It includes all sorts of activities like manufacture, sale, barter,
exchange, transfer etc. It also includes supplies made without consideration when
such supplies are made in certain specified situations.

Threshold Exemption: Threshold limits of aggregate turnover for exemption from

registration and payment of GST for the suppliers of goods would be Rs. 40 lakhs and
Rs. 20 lakhs (in case of States of Arunachal Pradesh, Manipur, Meghalaya, Mizoram,
Nagaland, Puducherry, Sikkim, Telangana, Tripura and Uttarakhand) with effect from
01.04.2019. Threshold limit of aggregate turnover for exemption from registration
and payment of GST for suppliers of services would be Rs. 20 lakhs and Rs. 10 lakhs

37
(in case of States of Manipur, Mizoram, Nagaland and Tripura). A common threshold
exemption applies to both CGST and SGST. The benefit of threshold exemption,
however, is not available in inter-State supplies of goods.

Composition Scheme: Composition scheme has been formulated for small

businessmen being supplier of goods and supplier of restaurant services. Under the
scheme, person with turnover up to Rs. 1.5 crore (Rs. 75 lakhs in States of Arunachal
Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and
Uttarakhand) needs to pay tax equal to 1% to 5% on his turnover and needs to file his
returns annually with quarterly payment. Composition scheme has also been
formulated for supplier of services (to those who are not eligible for the presently
available composition scheme). Under the scheme, person with turnover up to Rs. 50
lakhs needs to pay tax equal to 6% on his turnover and needs to file his returns
annually with quarterly payment from FY 2019-20.

Zero rated Supplies: Export of goods and services are zero rated. Supplies to SEZs
developers and SEZ units are also zero-rated. The benefit of zero rating can be taken
either with payment of integrated tax, or without payment of integrated tax under
bond or Letter of Undertaking.

Cross-utilization of ITC: IGST credit can be used for payment of all taxes. CGST
credit can be used only for paying CGST or IGST. SGST credit can be used only for
paying SGST or IGST.

The credit would be permitted to be utilized in the following manner:

a) ITC of CGST allowed for payment of CGST & IGST in that order;
b) ITC of SGST allowed for payment of SGST & IGST in that order;
c) ITC of UTGST allowed for payment of UTGST & IGST in that order;
d) ITC of IGST allowed for payment of IGST, CGST & SGST/UTGST in that
order.

38
ITC of CGST cannot be used for payment of SGST/UTGST and vice versa. It has
been further provided that IGST balances shall be exhausted for payment of IGST,
CGST or SGST, as the case may be, before utilization of CGST or SGST.

Settlement of Government Accounts: Accounts would be settled periodically

between the Centre and the State to ensure that the credit of SGST used for payment
of IGST is transferred by the originating State to the Centre. Similarly, the IGST used
for payment of SGST would be transferred by Centre to the destination State. Further
the SGST portion of IGST collected on B2C supplies would also be transferred by
Centre to the destination State. The transfer of funds would be carried out on the basis
of information contained in the returns filed by the taxpayers.

Modes of Payment: Various modes of payment of tax available to the taxpayer

including internet banking, debit/ credit card and National Electronic Funds Transfer
(NEFT) / Real Time Gross Settlement (RTGS).

Tax Deduction at Source: Obligation on certain persons including government

departments, local authorities and government agencies, who are recipients of supply,
to deduct tax at the rate of 1% from the payment made or credited to the supplier
where total value of supply, under a contract, exceeds two lakh and fifty thousand
rupees. The provision for TDS has been operationalized w.e.f. 01 st October, 2018.
Exemption from the provisions of TDS has been given to certain authorities under the
Ministry of Defence..

Refunds: Refund of tax to be sought by taxpayer or by any other person who has
borne the incidence of tax within two years from the relevant date. Refund of
unutilized ITC also available in zero rated supplies and inverted tax structure.

Tax Collection at Source: Obligation on electronic commerce operators to collect

‗tax at source‘, at such rate not exceeding two per cent of net value of taxable

39
supplies, out of payments to suppliers supplying goods or services through their
portals. The provision for TCS has been operationalized w.e.f. 01st October, 2018.

Self-assessment: Self-assessment of the taxes payable by the registered person shall

be the norm. Audit of registered persons shall be conducted on selective basis.
Limitation period for raising demand is three (3) years from the due date of filing of
annual return or from the date of erroneous refund for raising demand for short-
payment or non-payment of tax or erroneous refund and its adjudication in normal
cases. Limitation period for raising demand is five (5) years from the due date of
filing of annual return or from the date of erroneous refund for raising demand for
short-payment or non-payment of tax or erroneous refund and its adjudication in case
of fraud, suppression or willful miss-statement.

Recovery of Arrears: Arrears of tax to be recovered using various modes including

detaining and sale of goods, movable and immovable property of defaulting taxable
person.

Appellate Tribunal: Goods and Services Tax Appellate Tribunal would be

constituted by the Central Government for hearing appeals against the orders passed
by the Appellate Authority or the Revisional Authority. States would adopt the
provisions relating to Tribunal in respective SGST Act.

Advance Ruling Authority: Advance Ruling Authority would be constituted by

States in order to enable the taxpayer to seek a binding clarity on taxation matters
from the department. Centre would adopt such authority under CGST Act.

Transitional Provisions: Elaborate transitional provisions have been provided for

smooth transition of existing taxpayers to GST regime.

40
Subsuming of taxes, duties etc.: Among the taxes and duties levied and collected by
the Union, Central Excise duty, Duties of Excise (Medicinal and Toilet Preparations),
Additional Duties of Excise (Goods of Special Importance), Additional Duties of
Excise (Textiles and Textile Products), Additional Duties of Customs (commonly
known as CVD), Special Additional Duty of Customs (SAD), Service Tax and cesses
and surcharges insofar as they related to supply of goods or services were subsumed.
As far as taxes levied and collected by States are concerned, State VAT, Central Sales
Tax, Purchase Tax, Luxury Tax, Entry Tax, Entertainment Tax (except those levied
by the local bodies), Taxes on advertisements, Taxes on lotteries, betting and
gambling, cesses and surcharges insofar as they related to supply of goods or services
were subsumed.

GOODS & SERVICES TAX NETWORK:

Goods and Services Tax Network (GSTN) has been set up by theGovernment as a
private company under erstwhile Section 25 of the Companies Act, 1956. GSTN
would provide three front end services to the taxpayers namely registration, payment
and return. Besides providing these services to the taxpayers, GSTN would be
developing back-end IT modules for 27 States who have opted for the same. Infosys
has been appointed as Managed Service Provider (MSP). GSTN has selected 73 IT,
ITeS and financial technology companies and 1 Commissioner of Commercial Taxes
(CCT, Karnataka), to be called GST Suvidha Providers (GSPs). GSPs would develop
applications to be used by taxpayers for interacting with the GSTN. The diagram
below shows the work distribution under GST.

Central Government holds 24.5 percent stake in GSTN while the state government
holds 24.5 percent. The remaining 51 per cent are held by nonGovernment financial
institutions, HDFC and HDFC Bank hold 20%, ICICI Bank holds 10%, NSE
Strategic Investment holds 10% and LIC Housing Finance holds 10%. The GST
Council in its 27th meeting held on 04.05.2018 has approved the change in
shareholding pattern of GSTN. Considering the nature of ‗state‘ function‘ performed
by GSTN, the GST Council felt that GSTN be converted into a fully owned
41
Government company. Accordingly, the Council approved acquisition of entire 51
per cent of equity held by non-Governmental institutions in GSTN amounting to Rs.
5.1 crore, equally by the Centre and the State Governments.

The design of GST systems is based on role based access. The taxpayer can access his
own data through identified applications like registration, return, view ledger etc. The
tax official having jurisdiction, as per GST law, can access the data. Data can be
accessed by audit authorities as per law. No other entity can have any access to data
available with GSTN.

CALCULATION OF GST:
How is GST calculated?
With the unified system of taxation, it is now possible for taxpayers to know the tax
levied at different points for various goods and services under the GST regimen. For
the calculation of GST, the taxpayer should know the GST rate applicable to
various categories. The different slabs for GST are 5%, 12%, 18% and 28%.

GST calculation can be explained by simple illustration :

If a goods or services is sold at Rs. 1,000 and the GST rate applicable is 18%, then
the net price calculated will be = 1,000+ (1,000X(18/100)) = 1,000+180 = Rs. 1,180.

GSTGST Calculation Formula

For calculating GST, a taxpayer can use the below mentioned formula :

In order to add GST to base amount,

Add GST
GST Amount = ( Original Cost * GST% ) / 100
Net Price = Original Cost + GST Amount

In order to remove GST from base amount

42
GST Amount = Original Cost – (Original Cost * (100 / (100 + GST% ) ) )
Net Price = Original Cost – GST Amount

How to use our GST Calculation Tool?

We, at Paisabazaar offer to taxpayers a dedicated and professional GST Calculator
tool that helps in easy calculation of GST. Taxpayers who want to calculate GST
with the differential GST rate can use our tool.
Mentioned below are steps to be followed for calculating GST through GST
Calculation Tool:
Step 1: Select GST Inclusive/GST Exclusive as per the requirement
Step 2: Enter the original amount
Step 3: Select the GST rate from the drop down menu list
Step 4: Click on Calculate to check the result. The result will show the total GST
amount and Pre-GST/Post-GST amount as per your original requirement

What is GST Inclusive amount?

GST inclusive amount refers to the total value of the product after including the
GST amount in the original value of the product. The tax is not charged separately
from the customer

What is GST Exclusive amount?

GST Exclusive amount refers to the value of the product by subtracting the GST
amount from the GST Inclusive value of the product.

INTRODUCTION TO BANKING SECTOR

43
A bank is a financial institution and a financial intermediary that accepts deposits and
channels those deposits into lending activities, either directly or through capital
markets. A bank connects customers that have capital deficits to customers with
capital surpluses.
Due to their critical status within the financial system and the economy generally,
banks are highly regulated in most countries. They are generally subject to minimum
capital requirements which are based on an international set of capital standards,
known as the Basel Accords.

Banking in India originated in the last decades of the 18th century. The first banks
were The General Bank of India, which started in 1786, and Bank of Hindustan,
which started in 1790; both are now defunct. The oldest bank in existence in India is
the State Bank of India, which originated in the Bank of Calcutta in June 1806, which
almost immediately became the Bank of Bengal.
This was one of the three presidency banks, the other two being the Bank of Bombay
and the Bank of Madras, all three of which were established under charters from the
British East India Company. For many years the Presidency banks acted as quasi-
central banks, as did their successors. The three banks merged in 1921 to form the
Imperial Bank of India, which, upon India's independence, became the State Bank of
India in 1955.

Structure of Indian Banking

As per Section 5(b) of the Banking Regulation Act 1949: “Banking” means the
accepting, for the purpose of lending or investment, of deposits of money from the
public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or
otherwise.”

All banks which are included in the Second Schedule to the Reserve Bank of
India Act, 1934 are scheduled banks. These banks comprise Scheduled
Commercial Banks and Scheduled Cooperative Banks.
44
Scheduled Commercial Banks in India are categorised into five different groups
according to their ownership and / or nature of operation. These bank groups are:
(i) State Bank of India and its Associates,
(ii) Nationalized Banks,
(iii) Regional Rural Banks,
(iv) Foreign Banks and
(v) Other Indian Scheduled Commercial Banks (in the private sector).
Besides the Nationalized banks (majority equity holding is with the
Government), the State Bank of India (SBI) (majority equity holding being with the
Reserve Bank of India) and the associate banks of SBI (majority holding being with
State Bank of India), the commercial banks comprise foreign and Indian private
banks. While the State bank of India and its associates, nationalized banks and
Regional Rural Banks are constituted under respective enactments of the Parliament,
the private sector banks are banking companies as defined in the Banking Regulation
Act. These banks, along with regional rural banks, constitute the public sector (state
owned) banking system in India.
The Public Sector Banks in India are back bone of the Indian financial system. The
cooperative credit institutions are broadly classified into urban credit cooperatives and
rural credit cooperatives. Scheduled Co-operative Banks consist of Scheduled State
Co-operative Banks and Scheduled Urban
Co-operative Banks.

VARIOUS BANKING SERVICES:

There are various services which are performed by banks they are:
1. Acceptance of deposits
2. Discounting of bills
3. Granting of loans
4. Collecting cheques, Bills and promotes for customers.
5. Collecting dividend and interest on various securities.
45
 6. Purchasing and selling of securities.
7. Payment of telephone bills, insurance premium etc.,
8. Issue of Credit and Debit cards.
9. Purchases or sells Foreign Exchange.
10.Undertakes Merchant Bank activities and so on.

GST AND BANKING SECTOR

Banking sector plays a very crucial role in a macro economic and monetary policies of
any country overall framework and the business dynamics of this sector largely differs
from other sectors. The regulatory framework for this sector is very strong and leaves
no room for any discrepancies. Unlike, other businesses where there are many un-
organised ways of style of workings still prevail, same is not the case with this sector
which is largely organised in nature. Therefore, any issues for this sector has to be
closely looked at and timely resolved so to that larger economic interest of the nation
is achieved. This article lay down various issues that a Banking sector may face due to
advent of GST and the suggestions so as to amend the rules, wherever required to be
address the negative impact of GST on the Banking sector.

Various aspects discussed herewith would apply to all types of banks viz.,
Nationalised Banks, Private Banks, Public Banks, Co-operative Banks etc. However,
the article does
not lay discussion on Non-Banking Financial Companies (NBFC’s), Micro Finance
companies, Credit Cooperative societies etc.
There was an increase in tax rate for banking services that was being charged earlier
Goods and service tax is the biggest indirect tax reform implemented on July 2019,
replacing a multiple taxes in India and the previous system direct and indirect taxes
levied on goods and services fell between 18% to 40% which have now been
reconstructed between 5% to 28%. Currently GST is the only tax for the entire
country. Under GST tax system good and services are imposed at the rates of 0%, 5%,
12%, 18%, 28%. There is a different rate of 0.25% on precious and semi-precious

46
stones and also 3% of tax on gold. Other rates on top rate of 28% GST on a few items
like tobacco products, luxury car, and aerated drinks. The tax system has created
major impact on various sectors of the country both positively and negatively.
Banking place a crucial role in Indian economy. Goods and service tax for financial
sector would be a major transformation as it would have created more impact on the
financial product and services, control mechanism in IT system and process and
substantial shift from centralized compliance to the state wise compliance. In the
banking sector it has made biggest change for all product and services have a high tax
rate compared to the previous one i.e 15% to 18%. The influence of GST on financial
sector was not that positive as most of the modifications were included in the law of
this sector.

AUTHORIZATION OF BANKS FOR GST COLLECTION:

As per Section 2(14) of the CGST Act, “authorized bank” shall mean a bank or a
branch
of a bank authorized by the Government to collect the tax or any other amount
payable
under the Act.
At present 24 Banks (after merger of five Associate Banks with SBI) are authorized
for
collection of Indirect taxes. As per the GST Payment process Report, only those banks
should be authorized to accept GST receipts who meet the minimum requirements
given in PARA 85 of the Report. On the basis of these minimum requirements, a
Bank Authorization Reference Model (BARM) was prepared by the Office of Pr.CCA
CBEC Department of Revenue containing the requirements in details. As per these
requirements, the existing authorized Banks are required to establish their IT
integrations with GSTN and RBI and to follow the pre-defined protocols to ensure
better service delivery to Tax payer and efficiency in remittance of funds to
Central/State Government Account with RBI. Out of

47
the 13 parameters, seven critical parameters were identified namely (i)Protocol to
ensure CIN is generated only when money is actually credited in Government
Account maintained in Banks e-FPB. (ii)The bank has a system of consolidated debit
of the tax payer account and corresponding multiple credits in the 39 Government
wise accounts. (iii) Approach adopted by the Bank for handling single debit and
multiple credit. (iv) The Centralized application for the OTC payments has been put
in place as required in BARM. (v) System for validations of challan data in OTC
Payments. (vi) Integration with GSTN for receipts and acknowledgement and (vii)
Bank-RBI Integration Completion Certificate obtained from RBI and enclosed.On the
basis of these seven critical parameters the proposals of all 24 Banks have been
assessed and found to be completed and accordingly it is proposed to authorize these
24 Banks for the collection of all collections of GST in the entire country.
The names of these 24 banks are as follows:

1. Allahabad Bank
2. Andhra Bank
3. Axis Bank
4. Bank of Baroda
5. Bank of India
6. Bank of Maharashtra
7. Canara Bank
8. Central Bank of India
9. Corporation Bank
10.Dena Bank
11.HDFC Bank
12.CICII Bank
13.IDBI Bank
14.Indian Bank
15.Indian Overseas Bank

48
 16.Oriental Bank of Commerce
17.Punjab and Sind Bank
18.Punjab National Bank
19.State Bank of India
20.Syndicate Bank
21.UCO Bank
22.Union Bank of India
23.United Bank of India
24.Vijaya Bank

ISSUES IN THE BANKING SECTOR DUE TO THE ADVENT OF

GST
BASED ON THE OBSERVATION
PROCEDURE OF REGISTRATION
Before the advent of GST all the banks in India have a centralized registration under
the Service tax law for all the branches in the country. The government has ruled out
centralized registration for financial institutions called banks under the new tax
regime goods and services tax and, it has mandated separate registration for each state
they operate in. It has become a compulsory activity for all the bank which work
within the country in order to carry out its functions. It created a huge compliance
burden on the banks [8]. It requires high harmonization and control between the banks
within and outside the state for tax matters. Under GST administration, accounting
and financial records etc. are to be maintained separately for each state-wise. the
banks doing state-wise registration, filing multiple returns for each state, multiple
audit and assessments especially in a situation where banks have branches in almost
every state and union territory of the county and with each state, each city, each
locality has a branch of the bank.

49
STEP IN THE REGISTRATION PROCESS:
➢ The customer has to Log on to www.gst.gov.in.
➢ The customer has to get on the ‘Services’ tab on the list of options at the top of
the page.

➢ Three options will be provided, viz. ‘Registration’, ‘Payments, and ‘User

Services’.

➢ Got to the ‘Registration’ and select ‘New Registration’.

➢ It will be redirected to a fresh page in which the customer will have to select
the option which differentiates whether he is a taxpayer or a GST practitioner
prior to entering a few information such as the legal name of the business, the
state and district in which the company is located, Permanent Account
Number, email address and mobile number. This is fundamentally Part-A of
the form.

➢ The information of the customer has to be entered will have to be confirmed

and verified by the portal, so the customer will receive a one-time password or
an email for authentication.

➢ Based on the type of business the customer is operating, he will be compulsory

to upload a few documents as requested.

Part-B of the form will then have to be filled in with a small number of details after
which the customer will obtain the Application Reference Number through email or
SMS.

The customer’s application will then be verified or checked by a GST officer and it
could either be accepted or you will be requested to present some more information or
documents until the authorities have all the required information to accept your
application.

For each state separate registration has to be done, if a bank or trader has branches in
numerous states. Businesses with more than 1 vertical can register individually for
50
each of them. Banks have to register each and every branch in which they operate in.
Any transactions or business activities are conducted only when the bank or the
company is registered under GST of the supplier of services. However, what
constitutes the ‘records of the supplier’ is not defined in the law leading to multiple
interpretations as to whether it is to be understood as accounting records or customer
records, vendor records and so on Further, in some cases banks would have multiple
addresses of the same customer in its records, this is possible as in case of a banking
sector a customer would add multiple accounts within the same customer id and in
which case only one address of the customer under whose address that customer id is
registered would be reflected as the address on records. However, it is possible that
the transaction is undertaken with the account holder within the same customer id but
having a branch in the different state. In such a situation, if strictly banks pay GST to
the state based on the “address on record” then it may end up paying GST in a wrong
state.
Therefore, banks have to record the address of each account holders within the same
customer id and GST needs to be charged on that account holder and accordingly, the
tax also must be paid to that respective state government of the account holder and not
the single address captured for the entire customer id.

REVERSAL OF INPUT TAX CREDIT ON CAPITAL GOODS

Before the implication of GST, as per Rule 6(3B) of CENVAT Credit Rules,
2004, an assessee in the banking sector has to reverse 50% of the CENVAT Credit
taken on a monthly basis on input and input services [13]. However, banks can take
full credit on Capital goods unless the said capital goods are exclusively used for any
exempted service. Now under section 14 of the GST law states that banks engaged in
supplying goods and services by way of accepting deposits, extending loans have to
reverse

50% of the eligible input tax credit on inputs, capital goods, and input services. It is
pertinent to note that requirement of reversal of standard 50% credit even on the

51
capital goods portion will have a negative impact [14] Various office furniture,
equipment, cash-counting machines, computers, printers,
air-conditioners etc. are of high procurement cost for any branch of the bank and if
50% of the credit on the same is to be reversed then it shall have an adverse impact.

GST IS CHARGED ON ALL BANKING ACTIVITIES

Banks have charged GST on various products and services carried on by the banks
except for deposits, which can be classified like this:

(1) TRANSACTION CHARGES:

Transaction charge is something which we pay when we are in need of a quick cash
and it is a tendency to run to the nearest ATM's available. The changes in the ATM's
transaction charges, making multiple trips to withdraw cash or check balance will cost
you more under the tax system GST. Transaction charges have been increased to 18%
which was 15% earlier. The shocking news is that the ATM transactions are restricted
to a certain point i.e., first 5 withdrawals are free after 5 withdrawals Rs.20 per
withdrawal is charged in order to reduce the withdrawal of money through ATM's
which will automatically increase the usage of internet banking. Also, the usage of
cheque book will be expensive if any customer uses more than 50 cheques a year and
it is charged less than Rs.100. The individuals have to pay Rs.3 more for every Rs.100
paid for banking transactions.

(2) LOANS:
As per information, it is said that all the loans are taxable under GST for 18% and
there is no chance of tax percentage to go beyond the tax slab of 18%. But there is a
big concern about the home loans which was availed to the borrowers for a VAT of
5% for construction materials and 3.5% service tax, overall of 8.5 which is now
available only as per the GST rate 18% which will be little more expensive for the
borrowers. And there is a chance of an increase in the interest rate added on home
loans by the banks and lenders too.

52
(3) INVESTMENTS:
Investments like mutual funds are affected negatively due to the introduction of GST.
GST bang on the income of mutual funds will certainly have an effect on the
consumers. For an investment company, an expense ratio is a cost incurred by them to
operate their mutual funds. The Goods and Service tax will be on the Total Expense
Ratio of the mutual funds and has been increased by 3%. In case of the policyholders,
they have to pay high premiums amount on their insurance assuming, a family spend
a sum of Rs 50,000 per annum on insurance exclusive of service tax, their expenses
will be increased by 3%, i.e., Rs 1500. Earning up to Rs 20 lakh will stay exempted
from GST for mutual fund distrtransaction

(4) INSURANCE:
GST has a severe effect on insurance as there is a rise in the premium, especially for
life, health, and car insurance policies. The tax rate has increased from 15% to 18%
under GST. For example, if the complete premium is for life insurance, a tax rate of
18% will affect the entire premium.

(5) INPUT TAX CREDIT:

Under GST, 50% of the CENVAT credit availed against inputs, input services, and
capital goods is to reverse which leaves them a position of reduced credit of 50% on
capital goods thereby increasing the cost of capital. Input tax credit is covered under
GST only when your supplier has deposited the tax he collected from you. It is to be
matched and validate before claiming it. So, it is compulsory that all supplier must is
registered under GST [22].

(6) OTHER SERVICES:

Banking facilities like locker facilities, tax payment, billing, and shopping etc. which
are offered by the banking sector are taxable for 18% under GST which is 3% higher
than the early tax rates. In caseof forex 1 % of the gross amount of the Indian rupee is
charged under GST i.e., the dissimilarity in the selling rate and buying rate of rupee

53
which is multiplied with the total units of currency. The pension is charged under
salary even if it is service provided by the bank .

IMPACTS IN GST ON BANKING SECTOR::

Banking sector plays a very crucial role in a macro economic and monetary policies
of any country overall framework and the business dynamics of this sector largely
differs from other sectors. The regulatory framework for this sector is very strong and
leaves no room for any discrepancies. Unlike, other businesses where there are many
un-organised ways of style of workings still prevail, same is not the case with this
sector which is largely organised in nature. Therefore, any issues for this sector has to
be closely looked at and timely resolved so to that larger economic interest of the
nation is achieved. This article lay down various issues that a Banking sector may
face due to advent of GST and the suggestions so as to amend the rules, wherever
required to be address the negative impact of GST on the Banking sector. Various
aspects discussed herewith would apply to all types of banks viz., Nationalised Banks,
Private Banks, Public Banks, Co-operative Banks etc. However, the article does not
lay discussion on Non-Banking Financial Companies (NBFC’s), Micro Finance
companies, Credit Cooperative societies etc.

1) State-wise Registration requirement:

Currently, all banks have a centralized registrations under the Service Tax
laws for all its branches. Banks having branches in multiple states & Union
Territories (UT) will be required to obtain registrations in each such state &
Union Territory in the GST regime. Such a requirement will have huge
compliance burden on the banks. Further, high coordination and control
between the banks within and outside state for tax matters needs to be placed.
Moreover, under GST, accounting, administration, financial records etc,
would be required to be maintained for each state-wise separately. This will be
highly cumbersome and challenging. Since, it will be difficult for the Banks to
cope up with such radical change of taking state-wise registrations, filing
multiple returns state-wise, multiple audits and assessments; especially in a
scenario where banks have presence in almost every state and union territory

54
 of the country and with each state, each city, each locality has a branch of the
bank. Further, even state-wise regional banks do not have capabilities to
coordinate and receive information from all the branches within the state and
comply with the tax requirements. With so many braches, the entire
coordination and assimilation of information at one place for compliance by
each state regional bank shall also be a challenge. Therefore, government must
provide for some special scheme to the banking sector so that the high
administration and compliance burden as placed under the GST is reduced as
the business dynamics of banking sector largely differs from that of other
industries.

2) Inter-state supplies of goods or services (or both) between two

branches of the same bank:
Presently, transactions between branches were not subjected to any taxes.
However, this is taxable in the GST regime. Inter-state supplies of goods or
services (or both) between two branches of the same bank, located in two
States, will attract IGST. Generally, banks would have lot of common/ shared
services being supported from Head Office such as call centre, security
software etc. Further, many times one branch would internally provide service
to other branches for example: resolving issue of a customer having PAN
India accounts, providing local information etc. to other branches etc. If GST
is to be charged on such supplies, even though the same are made without
consideration, it would cause unnecessary hardship. Although, relief is
provided in the valuation rules that in case of a transaction with distinct
persons, value disclosed on the invoice shall be deemed to be taken as an open
market value, however still valuation issues may creep as this rule does not
apply if the receiving branch is not able to avail the full credit due to any
reason whatsoever. Since, in a banking sector tracking such transactions would
prove to be a cumbersome task and lead to multiple interpretations and
disputes, therefore we suggest that by virtue of Rule 6(7) of GST Valuation
Rules, banking services be categorised in such class of services where value

55
 for any transactions undertaken between the distinct persons is deemed to be
considered as Nil.

3) Place of supply in case of banking services:

Under GST Law the place of supply of services for banking and other
financial services (BOFS) shall be the location of the recipient of services on
the records of the supplier of services. Provided that if the location of recipient
of services is not on the records of the supplier, the place of supply shall be the
location of the supplier of services. However, what constitutes the ‘records of
the supplier’ is not defined in the law leading to multiple interpretations as to
whether it is to be understood as accounting records or customer records,
vendor records and so on. Further, in some cases banks would have multiple
addresses of the same customer in its records, this is possible as in case of a
banking sector a customer would add multiple accounts within the same
customer id and in which case only one address of the customer under whose
address that customer id is registered would be reflected as the address on
records. However it is possible that the transaction is undertaken with the
account holder within the same customer id but having a branch in different
state. In such a situation, if strictly banks pay GST to the state based on the
“address on record” then it may end up paying GST in a wrong state.
Therefore, banks have to record the address of each account holders within the
same customer id and GST needs to be charged on that account holder and
accordingly tax also must be paid to that respective state government of the
account holder and not the single address captured for the entire customer id.
E.g. it is quite possible that bank issues ‘bank guarantee’ to be submitted to a
local authority by a company. Now, if as per the bank’s records, address of the
customer [as its HO] is mentioned/ maintained where such address is in the
other state, wrong GST may get levied. It is in this background, it is suggested
to bring suitable clarity in the place of supply provisions in this regard and the
term “Address on Records” be clearly defined to avoid any disputes as to
determination of place of supply.

56
 4) Reversal of Input Tax Credit on Capital Goods:
Presently, as per Rule 6(3B) of CENVAT Credit Rules, 2004, an assessee in
banking sector has to reverse 50% of the CENVAT Credit taken on monthly
basis on inputs and input services. However, banks can take full credit on
Capital goods unless the said capital goods are exclusively used for any
exempted service. However, section 17(4) of the GST law states that banks
engaged in supplying services by way of accepting deposits, extending loans
or advances have to reverse 50% of the eligible input tax credit on inputs,
capital goods and input services. It is pertinent to note that requirement of
reversal of standard 50% credit even on the capital goods portion will have
negative impact. Various office furniture, equipments, cash-counting
machines, computers, printers, air-conditioners etc. are of high procurement
cost for any branch of the bank and if 50% of the credit on the same is to be
reversed then it shall have an adverse impact. Further, since all the capital
assets are used for common services, therefore. ITC of only 50% in respect of
the capital goods gets allowed. Therefore, we suggest that the provision of
reversal of 50% credit for capital goods must be removed. Alternatively, the
same may be brought in line with the current service tax law and the credit for
capital goods must be available in maximum of 2 years as per the present
service tax law.

5) Reversal of Input Tax credit over and above standard 50%:

As per the provisions of the GST Act, option has been given to bankers to
reverse 50% of the CENVAT credit instead of reversing based on the input
service partly attributable to the taxable supply and exempted supplies. Similar
provision is also in place under Service Tax law. However, it is noted that
departmental notices are being issued demanding to reverse CENVAT credit
of input, input services that are exclusively used for exempted services even
though the option for reversal of credit at 50% is opted for.

57
 It is therefore suggested to have a specific clause incorporated stating that
once the option to reverse tax at 50% is opted, then there should not be any
conditions imposed over actual correlation of output services/ goods with
input services/ goods for the purpose of rejection of credits.
In such scenario, the entire tax paid for the procurement of goods and services,
irrespective of whether the same are directly or indirectly used for the taxable
or exempted supplies can be easily reversed at a specified reversal percentage
without any distortions as to interpretation of the law.

6) Taxability of Interest:
Presently, interest income and discount provided by the banks are covered
under negative list, hence not taxable to service tax. Under GST, the term
‘service’ is defined in a wide manner to cover ‘anything other than goods’
which may cover interest as well. Governments across the world do not levy
GST on interest. The GST Law in India too should clarify if interest is outside
the ambit of GST. If ‘interest’ is not expected to attract GST, it will have
implications on input tax credits claimed by banks. Further, such a move
would have larger economic issues. Therefore, we suggest to follow the
current scenario where in the service tax law, interest is kept in the negative
list, similarly interest can be kept in schedule 3 of the GST law so that it
neither amounts to supply of good nor service and therefore no GST would be
applicable on the same.

7) Sale of Repossessed Assets:

When a bank re-possesses assets from a defaulter of loan & sales them, VAT
is paid by the bank as a ‘dealer’ under state VAT laws in some States. The
litigation continues as to whether, the bank effects the sale of such assets or
facilitates/ compels the sale of assets by the defaulting borrower or as the case
may be, Bank has acted as an agent of the defaulting borrower to sale/dispose
off the asset. Such sales are effected to realise the bad/sticky loans of such
banks. In GST Law, if Banks are treated as suppliers of such assets, the
overall cost of operations for Banks would go up, as it is expected that the rate
58
 of GST would be higher than the present VAT rate. Therefore, it is expected
that the rate of such transactions should not be pegged under the category of
standard rate @ 18% and instead the same should be at a lower rate of 5%.
Further, banks would take possession and control over underconstructed
buildings if there is lapse in payment of instalments, in such a scenario
building would be sold before the receipt of completion certificate or first
occupancy. A suitable clarity has to be provided whether in this situation GST
would be applicable or whether it will not be treated as supply by virtue of
clause 5 of schedule 3 and not be taxable under GST since it is sale of
immovable property.

8) Value for reversal of Input Tax Credit:

Presently, as per Rule 6(3B) of CENVAT Credit Rules, 2004, an assessee in banking
sector has to reverse 50% of the CENVAT Credit taken on monthly basis or follow
the procedure for reversal as per Rule 6(3) i.e. reversal on actual basis. However, if
reversal is made on actual basis, then it is specifically provided that ‘Value’ for the
purpose of calculation of reversal shall not include the value of service by way of
“extending deposits, loans or advances” against consideration in the form of ‘interest’
or ‘discount’. Sup

REVIEW OF BANKING TAX RATE IMPLIED ON THE

PRODUCTS AND SERVICES UNDER GST

The table shows a brief description of the products and services provided by bank and
which help us To have a quick understanding of various tax rates imposed on various
products and services.

ITEMS TAXABLE / NON TAX RATE

TAXABLE
Deposits Non-Taxable -
Debit Card Taxable 18%

59
 Credit Card Taxable 18%
Loan Taxable 18%
Foreign Exchange Taxable 1% of Gross Rupees
Investments Taxable 18%
Banking Facilities Taxable 18%
Pension Non-Taxable -
Remittance Taxable 18%
(NEFT/RTGS)
Insurance Taxable 18%
ATM Taxable 18%
Input Credit Tax Taxable 18%

EXCEPTIONS IN GST
 As per GST Law 2017, there is no GST payable on Services received by the
Reserve Bank of India from outside India in relation to the management of
foreign exchange reserves. So, the rate of GST payable on Services received
by the RBI from outside India in relation to the management of foreign
exchange reserves is nil rate [8], [22].

 In the banking sector services by the way of extending loans or advances,

deposits in so far as the consideration is represented by way of interest or
discount (other than the interest in credit card services) [22].

 Services by the way of Inter sale or inter purchase of foreign currency among
banks or authorized dealers of foreign exchange or between banks and such
dealers.

 Services provided by a bank which is going to be acquired, to any individual

in relation to the settlement of any amount of money up to two thousand
rupees in a solitary transaction transacted through credit card, debit card or
charge card or other payment card service [23], [24].

60
IMPACT ON CUSTOMERS OF THE BANKS

Due to the arrival of GST, the tax rate on each and every products and service of the
banks have become expensive and less affordable to the customers. In table 2, various
tax rates on various items are explained.

1. Debit card and a Credit card is one of the common instruments used by the
customers nowadays, the tax charged on these instruments is 18% which is
costlier than the previous rate which was 15%.

2. Loans were available at a cheaper rate before the advent of GST, now the rate
has been fixed to 18% which made the customers in pressure and uncertainty
that whether the customer will be able to repay the amount.

3. Investments like mutual funds are negatively affected by GST. The customers
are in great strain that the cost incurred by the investments banks are very high
and the tax charged on these investments is 18% which is very much higher
for the customers to afford and mutual funds are largely based up to the total
expense ratio which has gone up by 3% after the initiation of GST [23].

4. Banking facilities like locker facilities, tax payment, billing, and shopping etc.
are widely used by the customer. It was charged at a rate of 15% and now it
has changed to 18%. Even though it is expensive customers with large assets
always maintain a locker system for their safety purpose.

5. Increase in the premium caused a large number of the customer to withdraw

the insurance policy. People with low income cannot afford the premium
charged under GST.

6. Due to the introduction of GOODS AND SERVICES TAX, the tax rate on
each and every product and services of the banks have become more costly
and less economical to the customer.
61
 7. Debit and credit card is one of the common product used by the customers
nowadays, the rate of tax charged on these instruments is 18% which is
expensive than the previous rate which was 15%.

8. Investment, like mutual fund are affected adversely due to implementation of

GST. The goods and services tax will be on the total Expense ratio (TER) of
the mutual fund and has been increased 15% to 18%.

Banking facility such as locker facility, tax payment, billing, shopping etc. are largely
used by the customers. It was charged at a Rate of 15% to 18%sec

ABCD ANALYSIS ON GST IN BANKING SECTOR

ABCD framework can be used to analyze the individual characteristics, system
characteristics, Effectiveness of a concept or idea, effectiveness of a strategy while
studying the business value in the society. ABCD analysis framework can be used for
any kind of company case study. ABCD analyzing framework allows the researcher
to analyse any issues related to both internal and external to its business. This analysis
framework being simple and straightforward, can be used to study many company
issues or problems to find a suitable solution through simplifying the issues/problems
by identifying the affecting factors through the factor analysis and critical constituent
elements through elemental analysis. Analysing business models, business systems,
business strategy, business concepts and ideas, products & services of a company,
future expansion plans of a company etc

Through ABCD constructs allows the readers to identify and understand the problems
from various Stakeholder’s point of view so that an optimum solution can be
developed. Thus, using ABCD analysis framework in suitable depth either qualitative

62
listing, qualitative analysis, or quantitative analysis of identified issues is
recommended in company case study as a research methodology. SWOC analysis
framework can be also used to know the strengths, weakness, opportunities, and
Challenges of GST in the banking sector.

63
ADVANTAGES:

64
  Self-regulating tax system: GST has introduced the concept of “Auto
Notified” and “Mismatch” mechanism so it is known as a self-regulating tax
system in which the mismatch shall be automatically notified by the system to
both the supplier/bank and recipient/customer and also autocheck provisions
are made to identify fraudulent practices .
 Transparent tax system: Consumers will get to know the actual amount of
taxes they are paying for goods and services in the form of a single GST rate
that which is split between central and state governments.
 Uniform tax rate: In the banking sector, GST maintains a uniform tax rate of
18% i.e., all the services are taxed for 18% in the banking sector.

 Compulsory registration: Under GST compulsory registration for the banks in

each branch they operate in order to reduce the confusion in the tax
mechanism in each state and each branch for any transaction .

BENEFITS:
 Easy understandable for the general public: GST is a new tax regiment
involved with a large number of goods and service. It is a simplified way of
tax in order to build the people aware of how the goods and services are taxed.
The tax is charged on different commodity under different slabs of 0%, 5%,
12% and 18% which easy for the people to remember and understand.
 No confusion in filing tax and tax rates: The people who have to pay GST
does not have any confusion in the tax rate as it is a uniform tax rate. There is
uniform tax rate of 0%, 5%, 12%, 18% and 28% .
 No tax on deposits: The bank is not charging any GST on deposits made by
the customers. It is totally exempted from GST due to that there is a huge
increase in the deposits of the bank.
 Increased number of Online banking: Under ATM withdrawal the first 5
withdrawals are free after 5 withdrawals Rs.20 per withdrawal is charged in

65
 order to reduce the withdrawal of money through ATM’s which will
automatically increase the usage of internet banking.
 Registration under GST: It will make the entire tax collection easier and each
branch of the bank can have an independent tax filing system .

CONSTRAINTS
 Banking became costlier for the customer: One of the important constraints of
the banking sector is due to the increase of the tax rate in almost all the
products and services, it became a costlier activity for the customer as it
became 18% [24]
 Home Loans: GST has affected mainly on the home loan. Now all the
products and services offered by the bank is 18% which was earlier 15%
except home loan which was 8.5%. There is a huge increase of 9.5% tax on
home loan due to GST.
 Place of supply: Under GST, the place of supply of services for banking and
other financial services shall be the location of the recipient of services on the
records of the supplier of services. Provided that if the location of the recipient
of services is not on the records of the supplier, the place of supply shall be the
location of the supplier of services. The place is not specified in the GST law
for banking activities which creates a huge confusion.
 Registration process: Each branch of the same bank should register separately
under GST, it forces the bank to do multiple audit and assessments.
 Expensive and attracts IGST: It is an expensive and inconvenient task for the
banks that each transaction between branches of the same banks are attracted
to IGST. The transaction between each branch of same banks in different
states is taxed under GST. It causes inconvenient for the banks located in
different states .

DISADVANTAGES

66
  The tax rate has increased to 18%: The services tax which was provided in our
country was 15% earlier which is now increased to 18 %. All the products and
services offered by the banks are under 18% which has made banking services
more expensive.
 Place of supply: One of the drawbacks of GST law is that the place of supply
is not specified for the banking activities. The banks have to assume the
customer’s contact point as the place of supply of services [30].
 Home loan: Compared to other loans home loan have higher rates than another
loan, the customer is in shock due to the huge increase in the home loan.
 Registration: One bank has to register multiple times in all branches at a
different state. It became a hectic work for the bank when GST was introduced
at first.
 Interstate charges: GST is charged IGST, CGST and SGST for the banking
transaction for each state and interstate transaction are charges IGST for every

4 CRITICAL IMPLICATIONS OF GST IN BANKING SECTOR-

67
The banking sector is one of the largest services sectors in India. The
implementation of the Goods & Services Tax (GST) will likely prove to be a
challenge for the sector on two counts – First, due to the higher GST rates
compared to the current service tax rate and second, due to the vast
geographical reach of most banks.

With the GST coming close on the heels of demonetization, the banking sector
needs to ensure that they are ready for this new tax regime.

Here, 4 critical implications of GST on the banking sector to help banks plan
their GST implementation strategy.

1. Substantial Increase in Compliance:

GST is a parallel tax regime where the States and the Center, tax the payer in
one go. Hence, banks may need to obtain State-wise registration in every
State where they have a branch. In case a bank has multiple branches in one
State, only one registration is required for all the branches in that State.

However, most banks have a multi-state presence. State-wise registration will

therefore lead to a substantial increase in compliance levels, especially
because most banks have obtained a ‘centralized’ registration under service
tax.  So, currently, a bank may be filing only two returns on an annual basis as a
service tax assesse, but with GST, the bank might be required to file as many
as 61 returns per year for every State they are present in (five returns per
month plus one annual return).

2. Determining Place of Supply Could be Critical

GST is a ‘place of supply’ based tax regime. Hence, for every transaction in
GST, the bank will need to determine the place of consumption where GST will
be paid. With bank branches conducting several transactions, both within and
outside States, determining the place of supply will not be very easy.

68
The Model GST Law casts the onus of determining whether a transaction is
‘intra-state’ or ‘inter-state’ on the assesse. So, banks will need to decide
whether the payment is against Central GST (CGST) and State GST (SGST) or
Integrated GST (IGST), based on the type of transaction.

Moreover, inter-state supplies of goods or services (or both) between two

branches of the same bank, located in two States, will also attract IGST. The
GST charged will be available as credit to the receiving branch; however,
tracking such transactions could prove to be a cumbersome task.

Services being intangible in nature, proxy rules/ provisions are prescribed in

the GST framework to help the assessee determine the place of consumption.
Though, typically, the place of consumption for banking services (as per
revised draft IGST Act) is the location of the recipient of services on the
records of the supplier. But there is ample scope for wrong determination for a
pan-India bank as there could be a dispute on who the service recipient is.

Further, in cases where there is a dispute over the place of supply of services,
the taxpayer may get entangled in legal disputes. Currently, the GST legislation
provides that if an assessee wrongly pays, say CGST and SGST (on a belief that
the transaction is intra-state), instead of IGST, then they will have to pay the
correct taxes (i.e. IGST) again and claim a refund for wrongfully paid taxes.

Ideally, instead of putting the onus on the taxpayer to determine whether the
transaction is intra-state or inter-state, the GST law should provide for a
simpler redressal mechanism.

3. Taxability of ‘Interest’

In the current tax regime, the service tax legislation does not tax ‘interest’. But
with GST, the term ‘service’ is defined in a wide manner to cover ‘anything
other than goods’ which may cover interest as well.
GovernmentsGovernments across the world do not levy GST on interest given
69
the fact that there is always a debate on whether interest is the time value of
money or a consideration for lending money. The GST Law in India too should
clarify if interest is outside the ambit of GST. If ‘interest’ is not expected to
attract GST, it will have implications on input tax credits claimed by banks.

4. Paying GST at Applicable Rate

With GST, services are expected to attract 18% GST. This rate is higher by 3%
from the current service tax rate of 15%. This may make banking services such
as issue of cheque books and demand drafts more expensive, particularly for
retail customers.

Another point to note is that these days banks also deal in commodities such
as gold / silver where a concessional GST rate is expected to be applicable.
Therefore banks need to be careful in paying GST with the appropriate
applicable rate on different products.

Way Forward

Banks have always been a huge pillar of the Indian economy and taxpayers are
literally banking on them for GST payments / financial needs. Given this, the
GST Council must provide clarity on GST for the banking sector and shed light
on several open ended issues that are plaguing them currently.

IRIS has been in the compliance space for over 2 decades having worked with
regulators and filing entities alike. On one hand, our solutions power the likes
of the Reserve Bank of India and Bank of Mauritius on the regulatory side, and
on the other, we support banks in meeting their compliance filing
requirements (FATCA, XBRL, FIU Reporting) and offer solutions for CRILC
analytics.

70
Secto

CHAPTER-2: LITERATURE AND REVIEW

➢ According to Agogo Mawuli (May 2014) in his Study on “Goods and

Service Tax-An Appraisal” he found that GST is not good for low-income
countries and does not provide broad based growth to poor countries. If still
these countries want to implement GST then the rate of GST should be less
than 10% for growth.

➢ According to Dr. R. Vasanthagopal (2011) in his study on “GST in India: A

Big Leap in the Indirect Taxation System” concluded that switching to
seamless GST from current seamless ted indirect tax system in India will be a
positive step in booming Indian economy. Success of GST will lead to its
acceptance by more than 130 countries in world and a new preferred form of
indirect tax system in Asia also.

➢ According to Ehtisham Ahmed and Satya Poddar (2009) in their study on

“Goods and Service Tax Reforms and Intergovernmental Consideration in

71
 India” found that GST introduction will provide simpler and transparent tax
system with increase in output and productivity of economy in India. But the
benefits of GST are critically dependent on rational design of GST.

➢ According to Nitin Kumar (2014) in his study on “Goods and Service Tax-
A Way Forward” concluded that implementation of GST in India help to
remove economic distortion by current indirect tax system and expected to
encourage unbiased tax structure which is indifferent to geographical
locations.

➢ According to Pinki, Supriya Kammav and Richa Varma (July 2014) in

their study on “Goods and Service Tax- Panacea For Indirect Tax System in
India” and concluded that the new NDA government in India is positive
towards implementation of GST and it is beneficial for central
government ,state government and as well as for consumers in long run if its
implementation is backed by strong IT infrastructure.

➢ According to Monika Sherawat and Upasana Dhanda (December 2015) in

their study on “GST in India: A key tax reform”, concluded that there are
various challenges in way of GST implementation and it need more analytical
research to resolve the battling interest of various stake holders and
accomplish the commitment for a
cardinal reform of tax structure in India.

➢ Agarwal Manoj Kumar “People’s perception about GST: An empirical

Study”. KAAV international journal of economics, commerce &business
management; Year of publication: 2017 states that GST has become the new
buzz in the Indian Business Environment. India has introduced the GST on 1st
July 2017 and he specifies that the biggest problem in today’s Indian tax
system is like the cascading effect and the tax evasion due to which distortion

72
 happens due to which many changes had been made in financial system these
distortions can be reduced by the GST. The GST implementation had also
brought the many commercial benefits to the Indian economy due to which the
revenue had been increased than the revenue at the VAT system.

Anand Nayar, Inderpal Singh “A Comprehensive analysis of Goods and Services

Tax in India”; Indian Journal of Finance; Year of Publication: 2018 states that GST
has shown different impacts on different sectors like IT companies, FMCG industry,
online shopping, Telecom Sector, Automobiles, Small scale industries and
entertainment. The GST on these sectors are different from each other. The GST on
IT companies vary from 14%-15%, due to this the cost of electronic products like
mobile phones, laptops has been increased and as of coming to FMCG industry there
have been a very strong impact on production and consumption. Sec

CHAPTER-3→RESEARCH METHODOLOGY
OBJECTIVES OF THE STUDY:
➢ To understand the concept of GST

➢ To study the effect of GST on banking and financial services.

➢ To compare the previous and existing regime of indirect taxes.

➢ To know the issues faced by the banking sector after the implementation of
GST.

➢ To know the tax rate imposed on products and services provided by the banks.

➢ To understand the challenges of the banks and the customers to fulfil GST
norm

HYPOTHESIS:

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 Null Hypothesis H0: There is no significant impact of GST with reference to
Banking Sector in Bhiwandi.

Alternative Hypothesis H1: There is a significant impact of GST with reference

to Banking Sector in Bhiwandi.

DATA COLLECTION:
Primary Data: Primary Data has been collected from customer and branch manager
of the Banks.

Sample size – 100 people and 5 Banks.

Sample Method – Survey Method and Interview.

Secondary Data: Secondary Data has been consolidated with primary data from
Internet.

SCOPE AND LIMITATIONS OF THE STUDY:

 The samples are collected within the area of Bhiwandi.

 The study is based on the period of 2 years [during the year 2017-2019].

CHAPTER NO – 4

DATAYSIS, INTERPRETATION AND PRESENTATION

 CUSTOMER SURVEY

Q1: Are you aware about GST?

74
 11

YES
NO

89

89% of the people in Bhiwandi are aware about GST.

11% people in Bhiwandi are not aware about GST

Q2: How do you get to know about GST?

75
 16 25

FRIENDS/FAMILY
20 MASS MEDIA
ONLINE
OTHERS

39

The people are came to know about the GST from different sources.
25% of the people are get know through friends/family.
39% of the people came to know through the Mass media.
20% of the people come to know through the online website or application.
16% of the people get to Know through other source like their C.A.

Q.3: Are you agree with GST policy in India?

76
 22

YES
NO

78

78% of the sample population agree with GST policy in India.

22% of the sample population do not agree with GST policy in India.
This shows that majority of people are agree with GST policy in India.

77
Q.4: Do you think GST will burden the people or customer?

53 YES
NO

53% of people think GST burden the banking customers.

47% of people think GST easy for the banking customers.

78
Q5: GST have increased the process of Goods and Services?

1.2
26

AGREE
50 DISAGREE
STRONGLY AGREE
STRONGLY DISAGREE

20

50% people agree that the GST increase process of goods and services.
20% people disagree with the above statement.
26% people strongly agree with the above statement.
4% people strongly disagree with the above statement.

This concludes that most of people think that GST have increased the process of
goods and services.

79
Q6: Are you aware about the GST rates?

3.2

YES
NO

75

75% of people are aware about GST rates.

25% of people are not aware about GST rates.

80
Q7 According to you the rates of GST are fair?

42

YES
NO
58

42% of people thinks that GST rates are fair.

58% of people thinks that GST rates are unfair.

This states that most of people thinks that GST rate are unfair.

81
Q8: According to GST rates on products and services are convenient
to common people?

1.2

32
37

AGREE
STRONGLY AGREE
DISAGREE
STRONGLY DISAGREE

16

57% of people are agree with the above statement.

16% of people are strongly agree with the above statement.
32% of people are disagree with the above statement.
15% of people are strongly disagree with the above statement.

82
Q9: GST has improving the tax revenue in addition to improving the
Economy?

35

AGREE
DISAGREE

65

65% of people are agree the above statement.

35% of people are disagree with the above statement.

83
This shows that majority of people agree that GST has improving the tax revenue in
addition to improving the economy.

Q10: Which Phase is more beneficial for Government/ People/

Institution?

3.2

BEFORE GST
AFTER GST

48

48% people says that before GST phase is more beneficial.

52% people says that after GST phase is more beneficial.

84
85
photos of primary data collection:

86
CONCLUSION:

The upshot of the study concludes that GST is a risky and challenging initiative taken
by the government for sustainable banking and a uniform tax is imposed on all the
products and services. The issues faced by the banking sector a highlighted in this
paper in order to understand how challenging The implementation of GST in the
banking sector was. The banks have to register in each state they Operate in. All the
services are provided with the same tax rate of 18% except deposits which is
Exempted from tax and services like ATM withdrawals, input tax credit, cheque,
loans, investments Have a negative impact after the implementation of GST which
made all these services very expensive To the customer, but it generates a large
amount to the Indian banking sector. And also, it is said that Rs.3 more for every
Rs.100 paid for banking transaction which contributes a huge amount to the
Economy. The transaction between two branches of the same bank was not subject to
any tax. But under GST tax regime interstate supply of goods and services or both
between the same bank’s two branches Located in two states are taxable which is
known as integrated goods and service tax. Under GST Law For banking and other
financial services shall be the location of the recipient of services on the records of
the supplier of services. GST law states that banks engaged in supplying goods and
services by way of accepting deposits, extending loans must reverse 50% of the
eligible input tax credit on inputs, capital goods, and input services. The banking
sector has now settled with the current tax rates and adopted the changes and runs
smoothly. The impact of implementation of GST on banks will be such that
transaction, operation, registration, accounting and compliance will need to be
restructured in is entirely. The slight increase in cost in the financial services should
be taken at a bitter pill for a better future. The GST system is basically restructured to
simplify current critical indirect Tax system in India. Like anything new, at the time
of implementation of GST all the sector facing many troubles. But it will simplify
existing indirect tax system and will help to remove inefficiencies created by the

87
existing current heterogeneous taxation system. It gives various advantages such as
unified tax system, easy input credit, reduced compliances etc. Thus we conclude, that
GST play a dynamic role in the growth and development of our country. But in the
banking sector it hikes the service tax rate, causes incomfort to the users.

BIBLIOGRAPHY-

WEBLOGRAPHY
www.wikepedia.com
www.taxguru.com
www.cleartax.com
www.quora.com
www.bankbazar.com

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 ANNEXURE

1: Are you aware about GST?

a) Yes b) No

2: How do you get to know about GST?

a) Friends/Family b) Mass Media c) Online d) others:

3: Are you agree with GST policy in India?

a) Yes b) No

4: Do you think GST will burden the people or customer?

a) Yes b) No

5: GST have increased the process of Goods and Services?

a) Agree. b) Disagree c) Strongly agree d) Strongly disagree

6: Are you aware about the GST rates?

a) Yes b) No

7: According to you the rates of GST are fair?

a) Yes b) No

8: according to GST rates on products and services are convenient to common

people?
a) Agree b) Strongly agree c) Disagree d) Strongly disagree

89
9: GST has improving the tax revenue in addition to improving the Economy?
a) Agree b) Disagree

10: Which Phase is more beneficial for Government/ People/ Institution?

a) Before GST b) After GST

Questionnaire for bank survey

NAME: DESIGNATION:
NAME OF THE BANK: BRANCH:

1) Do you agree that GST have changed Banking atmosphere

a)Agree b) Disagree

2) After GST online transactions have been increased or decreased?

a)Increased b) Decreased

3) What was the impact of GST on Money Lending?

a)Increased b)Decreased

4) GST has increased interest rates on Deposits/Loans ?

a)Yes b)No

5) GST rates on banking services are higher than the last tax rates?
a)Yes b)No

6) Do your Bank has registered under GST ?

a)Yes b)No

7) Do you agree that registration of banks under GST is compulsory?

a)Yes b)No

8) Which kind of difficulties faced by your bank regarding GST?

a)Banking activities became costlier to the customer.
b)Charges in registration process of GST.
c)Due to SGST, multiple audit and assessment is required.
90
 d)All of these

9) According to you what is the impact of GST on banking sector?

a)Positive b)Negative

10) Do you think GST is a satisfactory tax policy to the banking sector?
a)Yes b)No

91