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The induction of Goods and Services Tax (GST) in India is a significant shift from the current tax regime. It is presumed that the service sector shall have a major impact on GST than the manufacturing or the trading sector. In this article, we shall have a brief discussion on the applicability of GST on NBFCs (Non-Banking Financial Companies), but before that, let’s have a concise understanding of GST.
GST stands for Goods and Services Tax. It is an indirect tax that has eliminated other indirect taxes in India. It is a comprehensive and destination-based tax in India that was passed by the parliament in March 2017 but came into existence in July 2017. GST is levied on every value addition. It shall be imposed on every stage of a sale.
Some of the notable provisions are as follows:
The place of the supply of banking and other financial services like stockbroking services to any person must be at the location of the recipient of services on the supplier of services record. As per section 12(12) of the IGST (Integrated Goods and Services Tax) Act 2017 in case the place of the recipient of services is not on the supplier’s record, then the place of supply shall be the location for the supplier of services.
Section 17 of the CGST (Central Goods and Service Tax) Act provides for two options for input credit tax. These are:
A Non-Banking Financial Company conducting business in the supply of services by accepting deposits or extending loans cannot avail the credit of tax paid on input services that have been used for non-business purposes. Apart from that, under sub-section (5) of section 17, it shall not be given a credit attributable to supplies.
The Non-Banking Financial institution will, as per sub-section (4) of section 17, avail the credit of tax paid on inputs and services. From the remaining amount of input tax, 50% will be the input tax credit admissible for the company, and it must be furnished in Form GSTR-2.
In case the goods or services or both are utilized by the registered person partly in order to effect taxable supplies including zero-rated supplies under the CGST (Central Goods and Service Tax) Act or under the IGST (Integrated Goods and Services Tax) Act and partly for effecting exempt supplies under both the Acts, the amount of credit would be restricted to so much of the input tax as is attributable to the said taxable supplies including the zero-rated supplies.
A banking company or any financial institution including a Non-Banking Financial Company, engaged in supplying services through accepting deposits, extending loans or advances will have the option to comply with the provisions of sub-section (2) or avail of every month an amount equal to 50% of the input tax credits eligible on inputs, capital goods and input services in the month. The rest shall be lapsed provided:
The benefits of the application of GST on NBFCs (Non-Banking Financial Companies) are as follows:
The current tax regime under GST has affected the manner of working of the Non-Banking Financial Companies. It has benefitted from it, but at the same time, the challenges faced by the lending sector cannot be ignored. One can expect more governmental reforms that may alleviate tax burdens on the Non-Banking Financial Companies in India.
GST Applicability On NBFCsDownload PDF