You Can’t Bank
On It Anymore
Tax levies on banking services will
impact people belonging to different
income classes, says Suyash Desai
I
t has been a year since the
unified goods and services
tax (GST) came into force.
Like many changes in the new tax
regime, financial services in the
banking sector have seen a three
per cent hike in GST, up from 15 to
18 per cent.
The impact of this three per cent
hike on customers has been mixed.
The 18 per cent GST tax on banking
services which include select banking
transactions such as credit card
payment, ATM use, processing fee on
loan and funds transfer means that
the customer has to shell out more.
Adhil Shetty, Co-founder and
CEO of BankBazaar.com, believes
that the tax increase on banking
transaction is marginal. According
to him, “If you were paying `100
towards a DD (demand draft) or for
a cheque book, the charges after
GST would increase by only `3, from
`115 to `118.”
But in India, with wide income
disparity, any taxation change will
impact various income classes
differently. Ritwik Raj, a PhD scholar
from New Delhi’s Jawaharlal Nehru
University, believes that he is paying
more tax on banking services in GST
regime. “In the university premises,
there is no alternative to cash for
day-to-day transactions. Students
are compelled to do multiple ATM
transactions, thus ending up paying
more taxes,” he says.
But the impact is higher for
Pankaj Bharati, a tea seller in the
Fort area of Mumbai. He complains
of charges for not maintaining
mnimum account balance. “My
earnings are not much and several
times in the past, I had failed to
maintain the minimum balance.
Now with the hike in penalty charges
due to GST, it will become more
difficult for me,” he says.
Shetty is right in pointing out at
marginal increase in the taxation
under the GST regime for financial
services. But class heterogeneity
is an important component of our
society and the i mpact of any such
taxation change varies from one
class to another.
But this is not the case for
many others like R K Nair, a textile
merchant from Talasari district of
Maharashtra. “A small hike in certain
financial services like banking has
not impacted me on a personal
level,” he says.
Banks charge you for
Debit/credit card fees
NEFT/RTGS charges
Fuel surcharge
International ATM usage
charges
Depositing or withdrawing
charges for more than the
stipulated number of cash
transactions through ATM or
bank branch
Failure to maintain a
minimum balance in your
account
SMS alerts
Source: BankBazaar.com
According to him, spending
a few rupees for using debit and
credit cards or doing NEFT/RTGS
transactions is “negligible”. But he
rues, “the implementation of GST has
broken the backbone of medium and
small scale textile industry.”
These three examples demonstrate
three different levels of impact that
a hike of three per cent has made on
people from different backgrounds.
On a wider perspective, Parag
Mehta, Partner, N A Shah Associates
LLP, believes that there is a definite
impact on the end user. “Charges on
services like issuing cheque books,
demand draft and foreign exchange
transactions, along with penalties on
late payment, bouncing of cheque
and maintenance of low balance
have increased modestly. Though the
difference is minor, it has an impact
on the customer’s finances in some
way or the other”.
Rashmi Deshpande, Associate
Partner, Khaitan & Co, adds a caveat
to this. According to her, the credit on
goods was unavailable to banks in the
erstwhile tax regime. “As the credit
pool increases, the overall impact on
banking transactions due to increased
credit may neutralise the higher
rate of 18 per cent GST compared
to 15 per cent of service tax,” says
Deshpande.
Thus, the hike of three per cent on
banking services has to be viewed with
the income of an individual in mind.
The consensus is that the end user will
feel its impact in some way or other.
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