Exemption related To banking & financial Sector [Entry No. 27 &34 ] - GST Ready Reckoner - GST

Exemption related To banking financial Sector Exemption entry 27 Following Services are exempt : extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount other than interest involved in credit card services; inter se sale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange or amongst banks and such dealers. Mega Exemption Notification No. 12/2017-Central Tax (rate) dated 28.06.2017 defines the following terms: (zk) interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) but does not include any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised; (j) authorised dealer of foreign exchange shall have the same meaning assigned to Authorised person in clause (c) of section 2 of the Foreign Exchange Management Act, 1999; Example Raj an authorized dealer of foreign exchange regularly purchases and sells foreign currency these types of services are exempt Exemption Entry 34 Service by an acquiring bank Service by an acquiring bank, to any person in relation to settlement of an amount upto two thousand rupees in a single transaction transacted through credit card, debit card, charge card or other payment card service is exempt Explanation Acquiring Bank means any banking company, financial institution including non-banking financial company or any other person, who makes the payment to any person who accept such card. GST shall not be charged on charges charged by bank of payment of upto ₹ 2000/- made by any person through card. The said exemption is to encourage online transaction for small amounts made by credit card, debit card, charge card or other payment card service. Note : Charges on account of settlement of payments upto 2000/- are only covered . The exemption does not cover cases of bank charges on any account other than payment through cards. The exemption also does not cover the cases when settlement of amount in a transaction is more than 2000 Some Clarifications on above Issues Held that Solution 1. whether GST is applicable on the incentive paid by MeitY to acquiring banks under the Incentive scheme for promotion of RuPay Debit Cards and low value BHIM-UPI transactions. [ Circular No. 190/02/2023- GST dated 13/01/2023 Under the Incentive scheme for promotion of RuPay Debit Cards and low value BHIM-UPI transactions, the Government pays the acquiring banks an incentive as a percentage of value of RuPay Debit card transactions and low value BHIM- UPI transactions up to Rs.2000 The service supplied by the acquiring banks in the digital payment system in case of transactions through RuPay/BHIM UPI is the same as the service that they provide in case of transactions through any other card or mode of digital payment it is hereby clarified that incentives paid by MeitY to acquiring banks under the Incentive scheme for promotion of RuPay Debit Cards and low value BHIM-UPI transactions are in the nature of subsidy and thus not taxable. 2. Applicability of GST on the incentive amount shared by acquiring banks with other stakeholders in the digital payment ecosystem under the notified Incentive Scheme for promotion of RuPay Debit Cards and low value BHIM-UPI transactions. [ Circular No. 228 /2 2/2024-GST Dated 15/07/2024 ] The Gazette Notifications dated 17th December, 2021 and 14th January, 2023 issued by MeitY state that the incentives will be shared by the acquiring banks with other payment system participants and the payment system operator, in the proportion and manner decided by the National Payments Corporation of India (NPCI) in consultation with the participating banks. MeitY pays the incentive to the acquiring bank and it is further shared by the acquiring bank with the issuer bank. Issuer bank further shares the incentive with the Payer Payment Service Provider (PSP), which are typically banks, and the UPI app. The share of incentive paid by the acquiring bank to the issuer bank and further shared by the issuer bank to the Payer PSPs and the UPI app are decided by the NPCI in consultation with participating banks. Payer PSPs may choose to further share this incentive with Third Party App Providers (TPAP). However, the proportion of the incentive shared by Payer PSPs with TPAPs is not being decided by NPCI in consultation with the participating banks for Financial Years 2021-22 and 2022-23 and was determined by the business agreement between the Payer PSPs and TPAP. it is hereby clarified that further sharing of the incentive amount by the acquiring bank with other stakeholders, up to the point where the incentive is distributed in the proportion and manner as decided by NPCI in consultation with the participating banks under the notified Incentive Scheme for promotion of RuPay Debit Cards and low value BHIM-UPI transactions, is in the nature of a subsidy and is thus, not taxable.