Impact of GST on Banks and NBFCs

The Goods and Services Tax (GST) was implemented in India from July 1, 2017, and has since had a significant impact on the economy. Among many sectors affected by GST, banks and non-banking financial companies (NBFCs) have had to make several adjustments to comply with the new tax regime. In this article, we will explore the impact of GST on banks and NBFCs.

Changes in Tax Structure

One of the most significant changes brought about by GST was the unification of tax rates across India. Previously, banks and NBFCs were taxed differently in different states, resulting in a complex tax structure. With GST, banks and NBFCs are now subject to a uniform tax rate of 18%.

However, this change has resulted in a higher tax burden on banks and NBFCs. Previously, banks were exempt from paying service tax on services provided to customers, but under GST, they are required to pay tax on all services provided.

Compliance Costs

Another major impact of GST on banks and NBFCs has been the increase in compliance costs. Under GST, businesses are required to file three returns every month, which is a significant increase from the previous system. This change has resulted in an increase in the number of staff required to manage compliance, as well as the cost of software and infrastructure required to file returns.

Input Tax Credit

Under GST, banks and NBFCs are eligible for input tax credit on all goods and services used in the business. This means that they can claim a credit for the tax paid on inputs used in providing services. However, this has also resulted in increased scrutiny from the tax authorities, who are monitoring input tax credit claims closely.

Conclusion

The implementation of GST has had a significant impact on banks and NBFCs in India. While it has simplified the tax structure, it has also resulted in a higher tax burden and increased compliance costs. However, the provision of input tax credit has been a positive development for banks and NBFCs. As the GST regime continues to evolve, it is important for banks and NBFCs to stay updated on the latest changes and adapt their compliance processes accordingly.