Banking services to pinch

Mumbai: Customers will be required to shell out additional money for a host of banking and financial services including mutual funds, insurance and stock broking as the rate of tax on services under the GST regime has been fixed at 18 per cent as compared to the prevailing service tax rate of 15 per cent.

According to senior industry officials, all those services where customers are now required to pay service tax will see an increase in cost, which may vary from bank to bank depending on the amount of charges. They include non-maintenance of minimum balance, issue of multi city cheque books, withdrawal of cash from ATM’s beyond the permissible free transactions per month, cash deposits, locker charges, annual maintenance charges, net banking through NEFT or RTGS among others. Services provided by department of posts by way of speed posts and express parcel posts would also come under the increased tax bracket.   

“The new tax rate will definitely put additional burden on individual customers. Most of the banks earn a major chunk of income by way of commission and charges from SMEs and other corporates for their business-to-business dealings. However, the impact on them would be largely neutral as they would be eligible to claim input tax credit for the GST paid,” a industry official said.

Capital market transactions would also see an increase in cost as investors are currently paying service tax on the amount of commission charged by stock market brokers. Similarly, for mutual funds, the asset management fees or advisory charges levied from unit holders in the form of total expense ratio and commission charged by mutual fund distributors would also see a marginal increase under the new tax regime.

“While there will be a marginal increase in cost of transaction, it won’t have any significant impact on capital market investors. It will not be a deterrent for investors to invest in capital market,” said Jaideep Bhattacharya, MD and CEO of top3choice.com, a MF distribution platform.

The GST council, which finalised the rate last month, had listed services under five different tax slabs (nil, 5 per cent, 12 per cent, 18 per cent and 28 per cent).