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TMI BlogFAQ on Banking, Insurance and Stock Brokers Sector dated 01-07-2017X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2017? Ans. Where the services are rendered up to 30th June, 2017 and invoices in respect thereof are also raised on or before 30th June, 2017, the point of taxation would be as per the earlier service tax law and the services will be subject to service tax. Where the services are rendered up to 30th June, 2017 and the services are liable to be taxed under the reverse charge mechanism, the point of tax for such services as per the Point of Taxation Rules, 2011 shall be the date of payment. If the payment is made on or after 1st July, 2017, the supply of services shall be liable to GST. Q. 4. Which tax is to be applied by the service provider on invoice issued on or after 1st July, 2017 for services rendered up to 30th June 2017? Ans. The time of supply being issuance of invoice under the CGST Act, 2017, the supplier of services must charge GST in this case. However, where the payment for such supplies has been made (prior to issuance of invoice) as advance before the 1st of July, 2017, the tax would be payable under the law prevalent prior to 1st July, 2017, as the point of taxation had arisen before this date to the extent of advance. Q. 5. Is it necess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recipient to claim the input tax credit where supplies for services are made between distinct persons? Ans. No, this condition is not required to be complied with by the recipient. As per the proviso to sub-rule (1) of Rule 37 of the CGST Rules, 2017 the value of supplies made without consideration as specified in paragraph 2 of Schedule I of the CGST Act, 2017 shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of Section 16 of the CGST Act, 2017. Q. 10. A customer may avail numerous services from the bank/insurer in a given taxable period. Is it mandatory for banks to issue a tax invoice for each transaction or can the Bank issue a consolidated invoice for the service rendered during the tax period? Ans. As per the provisions contained in the first proviso to Rule 47 of the CGST Rules, 2017 an insurer, a banking company or a financial institution, including a NBFC may issue invoices within 45 days from the date of supply of service. Further, sub-rule (2) of Rule 54 of CGST Rules, 2017 provides that such entities may issue any other document in lieu of the tax invoice. Accordingly, such entities may issue a consolidated s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(3) of the CGST Act, 2017. As the import of goods would be under the cover of a bill of entry, there is no need to raise a self-invoice. It may, however, be noted that Section 9(4) of the CGST Act, 2017/Section 5(4) of the IGST Act, 2017 has been suspended vide Notification No. 38/2017-Central Tax, as amended from time to time. Q. 13. For supply of taxable services, can a digitally signed invoice be issued in duplicate, with the original being marked as Original and the duplicate copy being marked as Duplicate ? Ans. In the context of digitally signed documents, the requirement of issuing original and duplicate invoices does not arise. A digitally signed invoice can be retained by the supplier and also be made available to the recipient. Q. 14. Is there a requirement to issue a payment voucher at the time of making payment to the foreign supplier? When should the details of such tran-sactions be reported in the GSTR returns? Ans. Section 31(3)(g) of the CGST Act, 2017 mandates issuance of a payment voucher in such cases and the same is therefore required to be issued at the time of making payment to the foreign supplier of services. It would be refl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arketing expenses, consultancy fees, etc. The same needs to be appropriately invoiced or distributed through the ISD mechanism to the distinct persons who have actually used such services. Q. 18. Where a bank takes a separate registration for a separate business vertical, say for Bullion business, whether the requirement for reversal of 50 per cent. will also apply to bullion purchased by the Bank? Ans. In terms of Section 2(94) read with Section 25(4) (5) of the CGST Act, 2017, a person is required to obtain more than one registration within a State or more than one State shall be treated as a distinct person for each such registration. Section 17(4) of the CGST Act, 2017 is applicable qua each registration and not for the bank as a whole, provided each of the business verticals is separately registered. Therefore, a bank engaged in trading in bullion may not opt for 50 per cent. reversal in respect of its purchases of bullion, where it is separately registered as a business vertical. Q. 19. Where there is a supply of goods or services between registered branches of a banking company on which GST is paid, will the recipient branch/office be eligible for 100% c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich address should be considered for determining the place of supply in the case of banking/insurance services? Ans. As per Section 12(12) of the IGST Act, 2017, the place of supply of banking and other financial services, including stock broking services to any person shall be the location of the recipient of services on the records of the supplier of services. Address available on the records of the Bank or Financial Institution or stock broker, which is ordinarily used for communication with the customer, may be considered as the place of supply . As per Section 12(13) of the IGST Act, 2017 the place of supply of insurance services shall be the location of registered person if services are provided to a registered person and the location of the recipient of services on the records of the supplier of services if services are provided to an unregistered person. Address available on records of the insurance company, which is ordinarily used for communication with the customer, may be considered as the place of supply . Q. 24. With respect to registered customers, whether the bank/insurance company is required to ascertain the place of consumption of service or w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the bank in India. So the liability to discharge GST on such supplies will be required to be determined accordingly. Q. 30. Will the second proviso to Rule 28 apply in the case of a banking company that selects the 50% option to avail input tax credit set out in Section 17(4) of the CGST Act, 2017? Ans. The second proviso to Rule 28 of the CGST Rules, 2017 states that where the recipient is eligible for full input tax credit, the value as declared in the invoice shall be deemed to be the Open Market Value of the goods or services. In view of the second proviso to Section 17(4) of CGST Act, 2017, banks claiming input tax credit under the 50% option will be covered under the scope of the second proviso to Rule 28 relating to valuation, where services are provided between the branches of the bank. Q. 31. Are services supplied without consideration to a recipient other than related party / distinct person taxable? Ans. Section 7 of the CGST Act, 2017 read with Schedule I thereto provides that services supplied without consideration to related persons or distinct persons only would qualify as supply . Also import of services by bank from a related person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a security derived from a debt instru-ment, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; (B) a contract which derives its value from the prices, or index of prices, of under-lying securities. The definition of derivatives in SCRA is an inclusive definition. As derivatives fall in the definition of securities, they are not liable to GST. However, if some service charges or service fees or documentation fees or broking charges or such like fees or charges are charged, the same would be a consideration for provision of service and chargeable to GST. Q. 35. What is the nature of income/expenditure on Collateralized Borrowing and Lending Obligations (CBLO) transactions? Ans. In CBLO transaction, the borrowing bank pays an amount as consideration to the lending bank for funds provided by it for a short term. Such amount would qualify as `consideration represented by way of interest or discount and hence, would not be subject to GST [serial no. 27 of the table of Notification No. 12/2017-Central Tax (Rate), dated 28th June, 2017, as amended]. However, if any charges or fees are levied for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply of service and chargeable to GST. Q. 38. What is the nature of income earned/expended in instruments like repos and reverse repos and is such income taxable under GST? Ans. Section 45U(c) of the RBI Act, 1934 defines repos as an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed. Section 45U (d) of the RBI Act, 1934 defines reverse repos as an instrument for lending funds by buying securities with an agreement to re-sell the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent. Repos and reverse repos are financial instruments of short term call money market that are normally used by banks to borrow from or lend money to RBI. The margins, called the repo rate or reverse repo rate, in such transactions are nothing but interest charged for lending or borrowing of money. Thus they have the characteristics of loans and deposits for interest and are accordingly exempt from GST [serial no. 27 of the table of Notification No. 12/2017-Central Tax (Rate) dated 28th Jun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for supply of services. Q. 41. Would sale, purchase, acquisition or assignment of a secured debt constitute a transaction in money? Ans. Sale, purchase, acquisition or assignment of a secured debt does not constitute a transaction in money; it is in the nature of a derivative and hence a security. Q. 42. If any service charges or administrative charges or entry charges are recovered in addition to interest on a loan, advance or a deposit, would such charges be also a part of the exemption? Ans. No. The services of loans, advances or deposits are exempt in so far as the consideration is represented by way of interest or discount. Any charges or amounts collected over and above the interest or discount would represent taxable consideration and hence liable to GST. Q. 43. To what extent is invoice discounting or cheque discounting or any other similar form of dis-counting exempt under GST? Ans. Discounting of invoices or cheques falls within the meaning of services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount . Such discounting is exempt from payment of GST, as such d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Government? Ans. The adjustment of GST already paid is allowed only by way of issuance of credit/debit note in terms of Section 34 of the CGST Act, 2017. The proviso to Section 34(2) of the CGST Act, 2017 provides that no reduction in liability would be allowed if the incidence of tax has been passed on to another person. If bad debts are on account of deficiency in supply of services, or tax charged being greater than actual tax liability, or goods returned, GST paid on the same is refundable subject to fulfilment of the prescribed conditions. Therefore, GST already paid on bad debts, as used in the trade parlance, cannot be adjusted. Q. 49. Would imposition of a fine or penalty for violation of a provision of law be a consideration for the activity of breaking the law, making such activity as service? Ans. No. Fines and penalties are imposed for breaking the law by a person. They are not in the nature of a consideration for an activity and hence, would not constitute a supply of service. Q. 50. Which services will qualify as services provided to account holder as per Section 13(8) of the IGST Act, 2017? Ans. The place of supply of services s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a bank or through a contractual relationship between the branch of a bank and the customer. The branch holding the customer s account is referred to as the Account Branch or the Home Branch . An account would include all types of accounts - viz. interest bearing, non-interest bearing, loan account, deposit account, etc. In the present day of anywhere banking , the customer avails banking services through mobile/internet banking or by visiting any branch of the bank. At times the services are provided through branches/locations other than the Account Branch or the Home Branch . It is clarified that the services provided by the other branches are actually services provided to the Home branch and are ultimately billed to the home branch. Thus, the location of supplier in such cases is the Home Branch/Account Branch. Q. 53. What is the manner of dealing with various services provided by banks and other financial institutions? Ans. Banks and financial institutions provide a bouquet of financial services relating to lending or borrowing of money or investments in money and other related services. For such services invariably a variety of instruments are used in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation to Section 8 of the IGST Act, 2017], and will be taxable in India, as the location of the supplier is in India and the place of supply is outside India. Such services will not be treated as exports in view of the sub-clause (v) of Section 2(6) of the IGST Act, 2017 read with Explanation 1 to Section 8 of the IGST Act, 2017. Q. 55. Will the management oversight or stewardship activities performed in relation to business operations by the Head Office of a bank to a Branch in India be considered as a supply of services by the Head Office even when there is no consideration charged by the Head Office, nor any expenditure recorded in the books of account of the branches? Ans. As per Schedule-I to the CGST Act, 2017, supply of services between distinct entities will be a taxable supply even in absence of a consideration. Q. 56. If tax is payable on provision of management oversight or stewardship services by a related person, what shall be the value of supply when no invoice is raised, no payment is made by recipient or no entry is made in the books of account of the recipient of service? What will be the time of supply? Ans. As per Rule 28 of the CGST Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the invoice at the time of delivery of gold (metal) in terms of Section 12 of the CGST Act, 2017. Since the price of gold (metal) is not fixed, banks may issue an invoice wherein the value of the supply may be indicated on the basis of the metal rate in the international or domestic market. As and when the price is finally fixed by the jeweller, the bank should issue debit or credit notes for the difference in the price as per the original invoice and the price finally fixed, along with applicable GST. Q. 60. Whether tax is payable on interest charged by the banks on the outstanding amount of gold (metal) loan? Ans. The Gold (Metal) Loan Scheme is a means of financing. The jewellers can purchase gold (metal) from the banks on outright basis on payment of the price. The gold (metal) loan only provides an option to the jeweller to avail a loan and pay for gold (metal) at a future date. For this facility, the jeweller pays interest to the Bank. The grant of loan and levy of interest is dependent on the purchase of gold, and therefore, part of the same transaction or facility; therefore the interest, which is the consideration, will not be exempt as per provisions of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ans. The fund management charges are charges towards managing and administering the fund. These funds are managed by the Fund Management team. The location of the supplier of service for fund management charges shall be the location/office which manages the fund. Q. 67. Whether commission paid to insurance agents shall be construed as supplies received under Section 9(3) of CGST Act, 2017? If yes, whether the Life Insurance Company can raise a consolidated invoice for such commission payments? Ans. Sr. No. 7 of Notification No. 13/2017-Central Tax (Rate), dated 28th June, 2017 as amended covers supplies received from Insurance Agents and provides for the Insurance Company to pay GST on such supplies under Section 9(3) of the CGST Act, 2017. In such cases, the insurance company may issue agent-wise consolidated invoice at the end of the month for the supply of services received during the month. Q. 68. Whether insurance policies issued to Non-Resident Indians, where the premium is paid through the Non- Resident External Bank account, will be export of services ? Would the insurance premiums be taxable in cases where the same is not received in convertible foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of Section 140(1) of the CGST Act, 2017 read with Rule 117(1) of the CGST Rules, 2017. Q. 73. In the case of group insurance policies, a Master Policy is issued; the beneficiaries of the Master Policy may be located in more than one State. In such cases, what will be the place of supply of services? Ans. In the case of issuance of Master/Group Policy to a registered person where the premium charged is a single premium and not segregated based on the beneficiaries of the insurance policies, the place of supply for such policy will be the location of the registered person paying the premium. Q. 74. What is the time of supply of services for deposits and advances in cases of the recipient issuing a bank guarantee or making a deposit before assumption of risk and issuance of a policy? Ans. As per the proviso to Section 2(31) of the CGST Act, 2017, a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply. In case of advances, however, the time of supply is the time of receipt of advance as provided in Section 13( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the location of the recipient of services in terms of Section 12(12) of the IGST Act, 2017. However, in cases where the location of the recipient is outside India, the place of supply shall be determined as per Section 13(8) of the IGST Act, 2017 i.e. as an intermediary. Q. 82. Do stock brokers fall in the definition of interme-diary under Section 2(13) of the IGST Act, 2017? Ans. Yes. Since stock brokers arrange the supply of securities between two or more persons, stock brokers would be covered by the definition of intermediary . Q. 83. Would sub-brokers/ Authorized Persons fall in the definition of agent under Section 2(5) of the CGST Act, 2017? What would be the registration requirement for sub-brokers/Authorized Persons in the context of the Goods and Services Tax Regime? Ans. As per Stock Brokers and Sub-brokers Regulation, 1992 issued by SEBI, a sub-broker means any person, not being a member of stock exchange, who acts on behalf of a stock broker as an agent or otherwise for assisting the investors in buying, selling or dealing in securities through such stock brokers . It is, therefore, apparent that the sub-broker may not only be provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of service under Section 2(6) of the IGST Act, 2017? Ans. The stock broker being an intermediary, this situation shall be covered under the provisions of Section 13(8)(b) of the IGST Act, 2017 which provides that the place of supply shall be the location of the supplier of services. Thus such a supply will be treated as an intra-State supply and would be subject to Central tax and State tax/Union territory tax, as the case may be. Q. 86. What will be the effect if we have paid - (i) Integrated tax instead of Central tax and State tax/Union territory tax? (ii) Central tax and State tax/Union territory tax instead of Integrated tax? Ans. Under Section 19(1) of the IGST Act, 2017 a registered person who has paid integrated tax on a supply considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall be granted refund of the amount of integrated tax so paid in such manner and subject to such conditions as may be prescribed . Under Section 19(2) of the IGST Act, 2017 a registered person who has paid Central tax and State tax or Union territory tax, as the case may be, on a transaction cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply. Thus, securities are not goods under the CGST Act, 2017. Section 2(102) of the CGST Act, 2017 defines services to mean anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged. Thus, securities are not services under the CGST Act, 2017. Since securities neither fall in the definition of goods nor in the definition of services, they fall in the definition of non-taxable supply under Section 2(78) of the CGST Act, 2017. Q. 90. Stock brokers provide many other services like Depository Participant Services/Portfolio Mana-gement Services, etc. Do they require registration as separate Business Verticals? Ans. Section 2(18) of the CGST Act, 2017 defines business vertical to mean a distinguishable component of an enterprise that is engaged in the supply ..... X X X X Extracts X X X X X X X X Extracts X X X X
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