Bank auditing is the procedure of reviewing the services and procedures adopted by banks and other financial institutions. It is a routine procedure that all financial services entities must undergo in order to ensure that they are in compliance with industry standards and jurisdictional regulations.
In this Presentation let’s Discuss Bank Audit from GST Point of View
Bank Transactions under GST are pretty critical and complex as Banking Operations involves a variety of transactions like issuing cheques / Drafts / cards / issue process, ATM operations, credit wing, securities, letter of credit, net banking, cash backs and reward points, loans and advances, deposits, point of sale transactions, etc. ………
Banks and NBFCs also involve in different nature and volume of other services such as lease transactions, hire purchase, actionable claims, fund and non-fund based services etc.,
Unlike in Service Tax regime, where banks were used to take Single Registration Centrally on Pan India basis applicable to all the branches across the country, in GST Banks need to take Separate Registration for each state of operation.
Banks generally have multiple branches on pan India basis and each one is unique in its own nature of supplies, the transaction flow, types of customers & their unique requirements apart from various statutory obligations and local requirements, overly burdened banking sector with complexity of compliance and voluminous tax accounting records and returns filling, reconciliation and audit requirements.
Bank Audit from GST Angle: Major Areas to Cover:
We shall Discuss in this Article on the following Aspects
State-wise Requirement of GST Registration
Since, GST Registration is a State Specific and most banks have a pan-India presence which means they are required to register under GST in ALL states.
However, multiple branches in a same state are required to be registered under a single GST Number.
Auditors to Verify : Registration Related
Bank Outward Supply : Taxable & Exempted
Banks and financial institutions provide a bouquet of financial services relating to lending or borrowing of money or investments in money and other related services. For such services invariably a variety of instruments are used in the financial markets.
Transactions in such instruments have to be examined from the basis of very definition of supply which involves Goods or Services or both. The definition of ‘goods’ and ‘services’ in Section 2(52) and Section 2(102) of the CGST Act, 2017 specifically excludes money and securities respectively. ‘Money’ has been defined in Section 2(75) of the CGST Act, 2017 to include instruments like cheques, drafts, pay orders, promissory notes, letters of credit, etc. Therefore, activities that are only transactions in such Instruments would be outside the definition of service and hence GST is not applicable.
However, if separate consideration is charged for any related activity, GST applicable. Therefore, GST would be levied on service charges normally charged for various transactions in money including charges for making drafts, issuance charges for letter of credit, Bank Guarantee Commission Charges, Processing Fees on Loans, Documentation Charges, Ledger Folio Charges, Bank Statement Charges, Inspection & Survey Charges etc.
Vide Notification No. 12/2017- Central Tax (Rate); Dated 28th June, 2017, certain Exemptions are granted as follows:
Auditors to Verify : GST Taxable & Exempted Supply Related
Place of Supply of Banking and Financial Services
Place of Supply in Banking Sector is schematically explained below:
Auditors to Verify : Place of Supply Related
(Intra-State : CGST + SCGST / UT GST; Inter-State : IGST)?
Time of Supply of Banking and Financial Services
Time of supply relevant to Banking and Finance Sector is depicted below:
Auditors to Verify : Time of Supply Related
Disclaimer : The views and opinions; thoughts and assumptions; analysis and conclusions expressed in this article are those of the authors and do not necessarily reflect any legal standing.
Author : SN Panigrahi, GST Consultant, Practitioner, Corporate Trainer & Author Can be reached @ email@example.com