“Explore the critical GST perspectives during Statutory Bank Audits. Learn about transactions, exemptions, reverse charges, place of supply, and their impact on banking company financials. Understand GST implications on various services, foreign transactions, legal services, and input tax credit. Ensure compliance with GST rules, place of supply provisions, and export supply conditions. Trustworthy insights for Auditors conducting Statutory Bank Audits in the evolving GST landscape.”
1. While conducting the Statutory Bank Audit, the Auditors have to ensure the GST compliances and its impact on the financials of the banking company.
2. The transactions and expenses are to be reviewed from the perspective of levy, exemption, reverse charge, place of supply, input tax credit etc.
3. There is a change in the tradition of providing services by banking companies which is resulting in a wide range of services including investment services and other allied services.
4. The majority of services are accepting deposits, extending loans or advances by the banking companies. The services like bill discounting, income from commercial paper or certificate of deposit, Interest/discount on loans/deposit or advances, Interest for Reverse Repo Rate, etc. are exempted from GST vide notification 12/2017.
5. Various Inter-bank transactions of sale or purchase of foreign currency or transactions with authorized dealers of money changing are exempted from GST.
6. The definition of goods and services under GST Act 2017, excludes the “securities” and “money”. The issuance of promissory notes, Bill of exchange, letter of credit, Draft pay order, traveler cheque, money order etc. fit into the definition of “Money” and the sale of shares, government securities, derivatives, mutual funds fit into the definition of securities. and accordingly, the above transactions are outside the bracket of GST. For the above transactions if the extra amount is charged in the form of commission, fees, brokerage, service charges, documentation charges etc. then it will be chargeable to GST.
7. Usually Banks charge for statements, cheque books, cheque bouncing, ledger folio, stop payment, standing instruction, bank guarantee commission, demand draft documentation, loan processing, conversion charges, Inspection charges, Services to RBI, etc. and accordingly such transactions become taxable transactions and are liable for GST.
8. There are various other services like Interest income on credit card, commission on leading the investments, brokerage, Agency charges for being facilitator, portfolio management services, locker charges, Account maintaining charges, credit/debit card charges, convenience fees, sale of repossessed asset, penalties, retention charges which are also liable for GST. The Auditor should assess the transactions and verify whether taxes are paid as per the applicable rate of tax.
9. The services by way of securities, foreign exchange broking and purchase or sale of foreign currency, including money changing is chargeable to GST on special value calculated as per option availed in terms of Rule 32 of CGST Rules. The Auditor should verify the valuation mechanism for payment of GST for the above transactions.
10. The Banking companies are liable under reverse charge on the fees paid to the recovery agents/third party agents if they hired to initiate recovery on behalf of the banks.
11. They are even liable for reverse charge tax towards the commission paid to Insurance Agents if they are providing services to the banks who are engaged in the business of insurance.
12. The legal services availed by banks ‘on account of’ their customers though legal fees paid to the advocates by off-setting with the respective customer accounts must pay GST on RCM basis.
13. There are certain expenditures incurred for the payment to the foreign vendors like bond bloating expenditure, underwriting expenditure, professional charges which are treated as import of services and are liable for GST under reverse charge.
14. The Auditor should verify whether the credit taken in respect of services covered under RCM is taken only after making payment of GST. The Auditor should reconcile the RCM tax payable as reported in books of Accounts along with the returns filed in GST portal. Any difference in liability should be reported along with the interest payable in the Audit Report accordingly.
15. The banking company avails the input tax credit against various service providers like third-party ATMs, business correspondents (BC), Customer Service Points (CSP) or third-party
16. The banking company would have either opted for reversal of credit as per section 17(2) with reference to Rule 42/Rule 43 of CGST Rules or would have availed 50% of the eligible input tax credit on inputs, capital goods and input services as per Rule 38 of CGST Rules 2017. The Auditor should verify the apportionment of input tax credit and the accounting of the same in the books of Accounts.
17. The Auditor should verify whether payment within 180 days is made or not to the vendors as per Proviso of section 16(2) of CGST Act 2017.
18. If the banking company is registered as an input service distributor, then the auditor should check the input tax distributed in compliance of section 20 of CGST Act 2017 read with Rule 39 of CGST Rules 2017.
19. The Auditor should verify the place of supply provisions like in case of services provided by bank to its offshore account holders, the place of supply is the location of service provider i.e., location of the bank and these services will treat as Intra-state supply of services.
20. The Auditor should check the conditions for export of supply of service to avail benefit of export supply without payment of tax and such benefit is subject to furnishing of LUT/Bond.
21. The Auditor should verify the amount received by the service provider for the services exported are in convertible foreign currency within the time limit prescribed by RBI or not and verify the refund application if any made by the banking company in accordance with the CGST Rules 2017.
22. From the perspective of GST compliance, the statutory Auditor should analyze the impact of GST regarding various aspects of the line items of the financial statements and should report the statutory liability if any under the GST law during the conclusion of Statutory Bank Audit.
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