TaxTMI 
TaxTMI 
FAQ on Banking, Insurance and Stock Brokers Sector dated 01-07-2017
X X X X Extracts X X X X
X X X X Extracts X X X X
....30th June, 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. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed with by the 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons of Section 12(3) or 13(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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y audit fees, advertisement and marketing 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....turn, whichever is earlier. Q. 23. Which 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 ascerta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....exporter and one from the overseas correspondent banks 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Section 2(ac) of SCRA, "derivatives" includes - (A) 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or such like fees or charges are charged, the same would be a consideration for supply 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of transfer or assignment of a debt would be chargeable to GST, being in the nature of consideration 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 consideratio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....become ire-coverable as a bad debt in commercial practice, would such GST paid on accrual basis be refundable to the service provider by 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is the location of the supplier in case of banking and other financial services where multiple locations are involved in providing the services to a customer? Ans. Banking services emanate from the bank account opened by a customer with the branch of 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 inst....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vices provided by a bank or the branch of a foreign bank in India to its offshore branch/head-office, which are neither intermediary services nor services to account holders, are inter-State supply of services between distinct establishments [as per Section 7(5)(a) read with Explanation 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tal) is seldom returned and the jeweller fixes the price of gold (metal) within the stipulated period of 180 to 270 days. Considering the nature of transaction, the supply of gold (metal) will take place on the date of delivery of gold (metal) to the jeweller. The banks should raise 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....king charges or such like fees or charges are charged, the same would be a consideration for provision of services related to securitization and chargeable to GST. INSURANCE SECTOR Q. 66. What is the location of the supplier of service for fund management charges in ULIP policies? 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....142(5) of the CGST Act, 2017 specifically provides for refund of tax paid under the Finance Act, 1994 in respect of services not provided. The same shall be disposed of in accordance with the provisions of Chapter V of the Finance Act, 1994. Q. 72. Can the input tax credit of Krishi Kalyan Cess be carried forward? Ans. No. It is not permitted in 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to GST. Q. 81. What will be the "place of supply of services" in case of stock brokers? Ans. In case of stock broking, the details of the address of the client are required to be updated with the Stock Exchange as part of the "Unique Client Code" details. Therefore, in case of domestic supplies of such services, address on record with the stock brokers shall be 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... stock broker nor rented/ leased in favour of the stock broker and there are no employees on the payroll of the stock broker in such an office, then such premises shall not be considered a place of business of the stock broker. Q. 85. Stock Brokers deal with clients who are not residents of India like Foreign Portfolio Investors, Non-Resident Indians, Persons of Indian Origin, etc. Will brokerage earned from such clients who are not resident in India qualify as "export 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? An....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... tax invoice as envisaged under Section 31(2) of the CGST Act, 2017 read with Rule 47 of the CGST Rules, 2017. Q. 89. What is considered as 'securities' under the Goods and Services Tax Act? Are they taxable under GST? Ans. Section 2(101) of the CGST Act, 2017 defines "securities" to have the same meaning as assigned to it in clause (h) of Section 2 of the Securities Contracts (Regulation) Act, 1956. Section 2(52) of the CGST Act, 2017 defines "goods" to mean every kind of movable property other than money 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 ....