Budget Expectations on GST Implication
ince Banks get only 50% input credit, they load this loss on Corporate BCs while paying commission to BC Agent, which makes the tax impact as 27%. In wake of changes in RBI circulars which help use NPCI IMPS tech and serve in remote areas, the new service suffers with these old guidelines.
While we enter into the final leap of Budget 2021 introduction industry experts are coming forward with their set of expectations from the Union Budget 2021.
BC Guidelines mentions that Bank (and not the BC) should charge a fee to customers. This was written in times when a Bank served only its customers at BC Agent outlet and could charge a customer for all services by debiting the customer account. But now, a BC Agent also services customers of other Banks and hence the Banks can’t charge a customer. But on the interpretation of guidelines, the fee collected by BC Agent has to be sent to Bank with 18% GST. Since Banks get only 50% input credit, they load this loss on Corporate BCs while paying commission to BC Agent, which makes the tax impact as 27%. In wake of changes in RBI circulars which help use NPCI IMPS tech and serve in remote areas, the new service suffers with these old guidelines. Since these services are mainly to the low and moderate-income section of the society, we request the govt to reduce the GST rate to Nil or a very subsidised rate (say 5%).
Viability of BC services:
A retailer selling FMCG products makes around 8%, on selling Telco services he gets 5% but to offer financial services, the commission as low as 0.30% – this is not a viable proposition. Even the high-value transaction of financial services doesn’t make it relevant in most cases with costs of local bank cash deposit charges etc
a. RBI’s earlier committee had proposed to make the AEPS fee as 1% but the same is not yet implemented. We request the govt to increase it to 1% from 0.5% currently.
b. Permit BC to dispense cash for Cross Border Remittances: Since the network of BC Agents are being activated with proper KYC and other verifications, govt (through RBI) could allow the sponsor Banks to facilitate dispensation of Cross border remittances through these BC Agents upto a specified limit.
c. Cash deposit Charges – BC companies working with sponsor banks may have access to limited branch network of the sponsor bank and hence utilise the branches of all other commercial banks to deposit cash. Charges for cash deposit are very high at these Banks. For Financial Inclusion companies, govt (through RBI) should cap a fee of 50 paisa per Rs 1 thousand of deposit.
d. TDS rate to be rationalised: The Sponsor banks deduct a 5% TDS on service fee paid to Corporate BCs as per applicable sections of the Income Tax Act. Given that BCs work on very thin margins (~10% Gross margins), a 5% TDS rate means a significant amount of working capital of the BCs gets blocked with the IT department. We request the govt to lower the TDS rate for BC services to 1% by inserting a separate provision in the Act.