The Indian Government has started doing the investigation on financial inclusion as banks and BCs have been facing issues due to 18 percent GST is being levied on these services. It is assuming that the Goods and Services Tax (GST) Council is likely to levy nil GST rates on financial inclusion services including small-value remittances that are carried out by business correspondents (BCs).
Currently, 18 percent GST rate has been levying on financial inclusion services but the head of industry has stated that higher GST rates are creating an additional burden for the bank or the BC agents, as they have to pay the higher amount of taxes to the government.
The total fee defined for these services are marked at 1.5 percent for banks and BCs. Banks and business correspondents (BCs) are liable to pay 18 percent of GST rates on such kind of services, whereas outlet or the service point has been from these services for fees up to ₹20 lakh.
Sources stated that the Fitment Committee of officials of the GST Council has been focusing on the problems of financial inclusion services and it is likely to be discussed in the next 31st GST Council Meeting which is set to be scheduled on December 22.
Domestic remittances is a sub-part of the financial inclusion services. It has been observed in the investigations that a big private sector bank has shut show its domestic remittances business due to the imposition of GST on it.
While observing the conditions of the market, it seems that many of the private banks either have to modify their domestic remittances business or shut down their domestic remittances business. Additionally, some of the banks have received tax notices from the tax department.
The Business Correspondent Federation of India (BCFI) and the Finance Ministry have been talking on this issue. However, the (BCFI) suggested to the GST Council that all of 12 financial inclusion services that are being introduced by Reserve Bank of India must levy zero GST on it.
Collection of small-value deposits, identification of borrowers, processing and submitting applications to banks, disbursal of small-value credit, and recovery of principal and interest are some of the services of financial inclusion except receipt and delivery of small-value remittances.
Anand Shrivastav, Chairman of BCFI stated that “We are confident that the existing interpretation gaps, which result in taxing the poor, will be resolved by the government. It cannot be the government’s intent to promote financial inclusion, (on the one hand), and on the other, impose a 27 percent GST on poor citizens”.
Anand Bajaj, Co-Chair of BCFI Communications Committee, requested to the government they should impose zero GST rates on financial inclusion services that are being offered by banks or business correspondents (BCs). Nearly 7.87 lakh BC are available in the country right now.
