Tag: gst

GST could see major overhaul; reducing tax slabs, pruning exempt list on table, BFSI News, ET BFSI

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India could be eyeing a significant revamp of the goods and services tax (GST) structure as the regime completes five years in July next year when compensation to states is set to come to an end. Tax slab restructuring and reducing exemptions could be considered in the most comprehensive makeover of the single tax that was rolled out on July 1, 2017.

The new regime may have just three major tax rates covering most of the items against four now – 5%, 12%, 18% and 28%. The recast will seek to simplify the regime as well as lift revenue.

A group of ministers (GoM) headed by the Karnataka chief minister is likely to meet soon to finalise its recommendations that could be taken up at the next GST Council meeting.

“At the last GST Council meeting a presentation was given on various revenue scenarios… It is for states now to see how they wish to tackle the situation post July,” said a senior government official detailing the major items on the agenda.

The Centre compensates states for loss of revenue on account of the implementation of GST for five years–that ends next year. States have been worried about a significant drop in their revenues once this compensation ends.

Union finance minister Nirmala Sitharaman had recently indicated that the effective tax rate under GST had slipped from the original revenue neutral rate of 15.5% to 11.6% “knowingly or unknowingly” due to multiple rate cuts since GST rollout in July 2017.

Policymakers Back Review of Slabs
Policymakers in states and the Centre have backed a review of the slabs to address the revenue issue.

Options on the table include pruning the list of items, both goods and services, currently exempt from the tax. One option is to merge the 5% and 12% levies to create one rate, and creating a three-slab regime of the merged rate, 18% and 28%.

“Discussions have been centred around how this rationalisation needs to be achieved,” an official said, adding that all options including reworking the slabs are being examined.

With GST revenue collections rising in recent months, it is felt that a revamp can be considered.

The GoM will meet on Saturday to discuss details with its final recommendations to be taken up by the GST Council.

Apart from the four key slabs, 0.25% and 3% applies to jewellery and precious metals, respectively, besides a top-up compensation cess levied on select items such as automobiles. Many common use items have been exempted from GST, making it a complicated regime prone to classification disputes and leakages. GST is not levied on nearly 150 goods and over 80 services.

The 15th Finance Commission, headed by NK Singh, in its report had also made a case for GST structure rationalisation.

Tax experts say that with GST collections showing an encouraging trend in the past several months, this may be the right time to simplify the rate structure.

“There is a need for rate rationalisation in GST and the multiple exemptions need to go and rates need to converge to a two or three-rate structure,” said EY partner Bipin Sapra.

By pruning the exemption list, the GST base can be widened, which will not only increase revenue but also keep the overall rates at a reasonable level, Sapra said.

Rather than focusing on increasing the effective tax rate, the emphasis should be on further expanding the tax base by keeping levies moderate, said Pratik Jain of PwC. “Further, from a tax policy perspective, it’s important to remove barriers like restrictions on claiming input credits and applying GST based on price points, size of packing, capacity and so on,” he said.



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We remain optimistic on growth, says ICICI Lombard CEO

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With the merger of Bharti AXA’s non-life business complete, ICICI Lombard General Insurance is excited about the business opportunities it has brought. In an interview with BusinessLine, Bhargav Dasgupta, Managing Director and CEO, ICICI Lombard outlines plans for the company post the second wave of the pandemic. Excerpts:

What is the strategy for the second half of the fiscal, especially with the merger of Bharti AXA’s non-life business?

We remain optimistic. For us the focus was in terms of getting the integration done. We got the approval and we had three working days to make it effective. It has gone smoothly. We are now working as a team. The reorganisation also has happened. Apart from that, there are a lot of business opportunities that we remain confident about. We believe health will be a big opportunity, we think motor will come back, and our corporate lines are doing well.

What’s the roadmap going forward post the Bharti AXA transaction?

Bharti AXA’s non-life business is around 20 per cent of our size as a company. As part of the transaction, we diluted about 7.3 per cent of our company. There are two things that we are looking at in terms of business, apart from people integration. One is the operational synergies. Over the last 12 months since we announced the deal, we’ve done a lot of preparatory work. Next three-to-six months we want to implement some of those things. The second is the revenue synergy and that is visible in terms of our quarterly numbers. We believe there is an even bigger opportunity with their distributors to give them new products. Some of these partners can sell more products in more markets. There is a scope for growth.

Are you re-entering the crop insurance segment?

We are already back in crop insurance because Bharti AXA was writing crop insurance. We will have the crop business, but as a percentage of our overall business, it may be relatively low. For the whole year, it will be about five per cent of our business. We want to stay invested and see how it goes for a couple of years before we take a decision on it.

We had a concern in crop insurance at two levels — one the reinsurance terms became very unfavourable. The underwriting aggression was also a bit high. And some of the challenges were in terms of the ground level implementation of the scheme on the crop cutting. Now, improvements has happened on all of these, so we’ll have to observe it.

As an industry, we are paying 18 per cent GST for health insurance, which is extremely high compared to global standards. The GST rate could be reduced to 5 or 12 per cent Bhargav Dasgupta MD and CEO ICICI Lombard

Motor segment continues to be very weak right now. Is that a concern?

There is an interesting dichotomy in motor, which has three components – private car, two-wheeler and commercial vehicles. In private cars, there is demand but there are supply-side constraints in terms of chip shortage.

On the two-wheeler, there is no supply-side issue but there seems to be a demand constraint at this point in time. It’s very unusual. We are hopeful that this festival season, the two-wheeler demand will pick up.

Motor third-party insurance rates have not increased. Is that another concern?

That is of course a concern because typically, the regulator would look at the actuarial data and give a price increase every year. It had issued an exposure draft in February-March of 2020, which had talked about a price increase about 7-8 per cent on a portfolio basis. That did not take place because of the pandemic-induced lockdown. This year, again, we had the second wave, so there was no price increase. In the meantime, there have been some judgments from the Supreme Court, which has increased the cost of claims. It’s an area of concern. We as an industry, need a price increase.

Any wish list for the Budget?

One wish list is for the budget, the other is for the GST Council. As an industry, we are paying 18 per cent GST for health insurance, which is extremely high compared to global standards. The GST rate could be reduced to 5 or 12 per cent. It’s been reduced to 12 per cent for commercial motor policy. Something similar on the health will be one ask that the industry has had for a long time. And a linked issue is the input credit for corporates as when they buy health insurance, they also don’t get that benefit.

On the Budget, we respect the fact that there are a lot of fiscal constraints and that the Finance Minister wants to streamline the personal benefits. But within the benefit pool that is there, if there could be some increase for health insurance and something for home insurance, in terms of tax breaks. It won’t be very expensive for the exchequer, but it will be a good nudge for people to buy insurance.

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Kerala Financial Corporation announces special loans for MSMEs

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Kerala Financial Corporation (KFC), a leading State-level financial institution, has launched a special loan product to the Micro, Small and Medium Enterprise (MSME) sector, aiming to assist them execute work orders and also discount pending bills.

Under the scheme, 75 per cent of the cost of work received from government departments/agencies/PSUs will be provided as a loan, a spokesman for the corporation said.

Duration of work

Repayment will depend on the duration of work and expected receipt of funds from the work-awarding authority. The rate of interest will be linked to the credit rating score of the MSME, starting at eight per cent.

Considering the Covid-19 situation, the credit rating of the MSME will be based on analysis of the balance sheet during the pre-Covid period, the spokesman said.

Once the work awarding authority accepts the bill, MSMEs can immediately get up to 90 per cent of the bill amount through discounting. For final bills, the discounting can be done without security also.

Discounting facility

MSMEs play an important role in the economic growth of the country. But they continue to face constraints in obtaining adequate finance, particularly in terms of sourcing funds required to execute work orders or convert bill receivables into liquid funds. The new scheme from Corporation will be appropriate to address such issues during this pandemic period, the spokesman said.

The applicant should be MSME Udyam registered to become eligible for the scheme. GST registration and the latest audited balance sheet are also mandatory. However, GST registration will not apply to MSMEs exempt from registration.

An audited balance sheet may not be insisted with respect to MSMEs with annual turnover of up to ₹2 crore, paying income tax on a presumptive basis.

The loan will be sanctioned as a Line of Credit (LoC) for a five-year period during when MSMEs can avail facilities such as guarantees, work execution loans, bill discounting, government promissory note discounting and equipment finance.

Maximum assistance

Maximum assistance will be ₹20 crore for companies/registered cooperative societies and ₹8 crore for others. However, the limit for guarantees and discounting of government promissory notes will be up to ₹50 crore for all entities.

The validity of the LoC is for five years. Once the customers execute the loan agreement, they can avail all facilities throughout the five-year period with minimum formalities. The scheme will be reviewed on the basis of feedback from the MSMEs.

Kerala Financial Corporation targets to disburse at least ₹500 crore under this scheme during the current financial year itself, the spokesman added.

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SBI Report, BFSI News, ET BFSI

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Mumbai, The digitisation drive and pandemic-induced emergence of the gig economy have led to a faster formalisation of the economy, with the share of the informal sector shrinking to just 15-20 per cent in 2021 from 52.4 per cent in 2018, according to an SBI Research report. Share of the informal economy has fallen drastically to 15-20 per cent of the gross value added (GVA) or the formal GDP in 2020-21 from 52.4 per cent in 2017-18 due to digitisation and the rapidly expanding gig economy, said Soumya Kanti Ghosh, the group chief economic advisor at SBI.

The share of the same had stood at 53.9 per cent in 2011-12.

According to Ghosh, many measures since the note-ban in November 2016 have accelerated digitisation of the economy, and the pandemic-induced emergence of the gig economy has facilitated higher formalisation of the economy, at rates possibly much faster than most other nations.

The note ban hit hardest the informal sector which then constituted 93 per cent of the workforce. The second blow to the informal economy was the GST and the final and the hardest hit came from the pandemic.

At least Rs 13 lakh crore has come under the formal economy through various channels over the past few years, including the recent scheme on the E-Shram portal, the report said.

Real GDP was estimated at Rs 135.13 lakh crore in FY21 but lost 7.3 per cent of that in FY22 after the worst economic contraction on record due to the pandemic.

The 2011 Census pegged the size of the informal sector in trade, hotels, transport, communication and broadcasting at 40 per cent; in construction at around 34 per cent; 16 per cent of public administration; and 20 per cent of manufacturing and almost 100 per cent formalisation in finance, insurance and utilities, and to a large extent in real estate and agriculture.

The formal financial sector has even expanded by 10 per cent post-the pandemic, with the DBT transfers gaining traction and that of formalised utility services size expanded by 1 per cent during the pandemic, according to the report.

The report, quoting the monthly EPFO payroll data, said that since FY18, almost 36.6 lakh jobs have been formalised till July 2021 and the report expects that this fiscal formalisation rate will be higher than FY20 but lower than the FY19 level.

Since FY18, the agriculture sector has been formalised by 20-25 per cent due to the increasing penetration of KCC credit and now the informal agriculture sector is 70-75 per cent.

Over the years, usage of Kisan credit cards has also increased significantly as the per card outstanding has gone up from Rs 96,578 in FY18 to Rs 1,67,416 in FY22, an increase of Rs 70,838. And there are 6.5 crore such cards, the amount formalised is Rs 4.6 lakh crore, the report noted.

It also said payments worth Rs 1 lakh crore have been made at petrol pumps alone in the past five years.

A sizeable informal economy is not just an emerging and developing economy feature, and according to the IMF, 20 per cent of the European GDP is an informal economy.

On the impact of the just-launched E-Shram portal, a first-ever national database of unorganised workers, on the formalisation of the economy, the report said as much as 5.7 crore unorganised workers have registered in the first two months after its launch in August, with 62 per cent of workers belonging to the 18-40 age-group and 92 per cent of the registered workers having monthly income of under Rs 10,000.

Ghosh considers the E-Shram portal to be a big step towards employment formalisation as to date the rate of formalisation of unorganised labour due to E-Shram is around 17 per cent or Rs 6.8 lakh crore, which is 3 per cent of GDP in just two months.

He also called for more rationalisation of indirect taxes like GST and excise, saying just 11.4 crore tax-paying households or 8.5 per cent of the total population contribute Rs 75 lakh crore or 65 per cent of the private final consumption expenditure and cross-subsidies to 91.5 per cent of the population.

As of the 2014 NSSO survey, as much as 93 per cent of the workforce earned their livelihoods as informal workers, who were hit the hardest by the pandemic too.



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GST surges to Rs 1.30 lakh cr in Oct; second highest collection since launch, BFSI News, ET BFSI

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New Delhi, India’s Goods and Services Tax (GST) collection surged to Rs 1.30 lakh crore in October, the second highest since its implementation in July 2017, indicating economic recovery from the COVID-19 pandemic and impact of festive demand, a finance ministry statement said on Monday.

The highest GST collection of Rs 1.41 lakh crore was recorded in April 2021.

This is the fourth time in a row when the GST collection was upwards of Rs 1 lakh crore. The collection from GST was Rs 1.17 lakh crore in September, 2021.

Tax collections last month on goods sold and services rendered was 24 per cent higher than in October 2020, and up 36 per cent over 2019-20.

“The gross GST revenue collected in the month of October 2021 is Rs 1,30,127 crore of which CGST is Rs 23,861 crore, SGST is Rs 30,421 crore, IGST is Rs 67,361 crore (including Rs 32,998 crore collected on import of goods) and Cess is Rs 8,484 crore (including Rs 699 crore collected on import of goods),” the statement said.

CGST refers to Central Goods and Services Tax, SGST (State Goods and Service Tax) and IGST (Integrated Goods and Services Tax).

The increase is very much in line with the trend in economic recovery and this is also evident from the trend in the e-way bills generated every month since the second wave.

The revenues would have still been higher if the sales of cars and other products had not been affected on account of disruption in supply of semiconductors, it added.

During October, revenues from import of goods were 39 per cent higher and the revenues from domestic transactions (including import of services) were 19 per cent higher than the revenues from these sources during the same month last year.

The statement further stated that the revenues have also been aided due to the efforts of the State and Central tax administration resulting in increased compliance over previous months.

In addition, it said, the action against individual tax evaders is a result of the multipronged approach followed by the GST Council.

On one hand, it said, various measures have been taken to ease compliance like nil filing through SMS, enabling Quarterly Return Monthly Payment (QRMP) system and auto-population of return.

On the other hand, the Council has also taken various steps to discourage non-compliant behaviour, like blocking of e-way bills for non-filing of returns, system-based suspension of registration of taxpayers who have failed to file six returns in a row and blocking of credit for return defaulters.

During the past one year, it said, GSTN has augmented the system capacity considerably to improve user experience.

With more and more taxpayers filing the returns every month, the percentage of returns of the old period filed in any month has been increasing continuously.

“With improvement of return filing, the focus of the GST Council has been on timely filing of GSTR-1, the statement containing details of invoices. This statement is critical to ensure discipline in taking input tax credit. Various steps have been taken to ensure timely filing of GSTR-1,” it said.

Overall, the impact of various efforts taken by the government has ensured increased compliance and higher revenues, the statement noted.

As a part of overall efforts to plug evasion, more steps to restrict fake ITC are under consideration of the GST Council.

The government has settled Rs 27,310 crore to CGST and Rs 22,394 crore to SGST from IGST as regular settlement, it said, adding, the total revenue of Centre and the States after regular settlements in the month of October 2021 is Rs 51,171 crore for CGST and Rs 52,815 crore for the SGST.



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Bandhan Bank gets empanelled as agency bank of RBI, BFSI News, ET BFSI

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Bandhan Bank said on Monday that it has been empanelled by the Reserve Bank of India (RBI) to act as an agency bank to facilitate transactions related to government businesses. The RBI’s decision will help Bandhan Bank in contributing to nation-building, its MD and CEO Chandra Sekhar Ghosh said.

The announcement comes months after a RBI guideline that authorised scheduled private sector banks as agency banks of the regulator for the conduct of government business.

With this, Bandhan Bank joins ranks with a few other scheduled private sector banks to be empanelled as agency banks of the RBI, the bank said in a statement.

As an agency bank, Bandhan Bank will be able to handle transactions related to collection of state taxes, and revenue receipts such as GST and VAT, collection of stamp duty, and pension payments on behalf of central and state governments, it added.

The bank’s extensive branch network will help it discharge its duties effectively by bringing governments and citizens closer to each other, it said.

“Since its launch six years ago, Bandhan Bank has been dedicated towards bringing millions of Indians into the fold of formal financial services and catalysing the creation of sustainable livelihoods,” Ghosh said. PTI dc SOM SOM



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Kotak Mahindra Bank becomes 1st scheduled private sector bank to collect direct, indirect taxes, BFSI News, ET BFSI

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Kotak Mahindra Bank Ltd (KMBL) has received approval from the government for collection of direct and indirect taxes, such as income tax, Goods and Services Tax (GST) etc, through its banking network.

With this, the bank becomes the first scheduled private sector bank to receive approval after the announcement by Finance Minister Nirmala Sitharaman allowing all banks to participate in government-related business.

After technical integration, KMBL customers will be able to pay their direct and indirect taxes straight from KMBL’s mobile banking or net banking platforms as well as through KMBL’s branch banking network, resulting in immense ease and convenience for customers, the bank said in a statement.

Kotak Mahindra Bank’s Joint Managing Director, Dipak Gupta said: “We are delighted to receive the necessary approvals permitting Kotak to collect direct and indirect taxes on behalf of the government, making tax payments more simple, convenient and efficient for our customers. We look forward to a long-standing relationship with the government, providing a wide range of services, backed by our strong technology platform, digital capabilities and customer-first approach.”



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Kotak Mahindra Bank gets nod to collect direct, indirect taxes, BFSI News, ET BFSI

Banking & Finance

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Mumbai, Kotak Mahindra Bank Ltd (KMBL) has received approval from the government for collection of direct and indirect taxes, such as income tax, Goods and Services Tax (GST) etc, through its banking network.

With this, the bank becomes the first scheduled private sector bank to receive approval after the announcement by Finance Minister Nirmala Sitharaman allowing all banks to participate in government-related business.

After technical integration, KMBL customers will be able to pay their direct and indirect taxes straight from KMBL’s mobile banking or net banking platforms as well as through KMBL’s branch banking network, resulting in immense ease and convenience for customers, the bank said in a statement.

Kotak Mahindra Bank’s Joint Managing Director, Dipak Gupta said: “We are delighted to receive the necessary approvals permitting Kotak to collect direct and indirect taxes on behalf of the government, making tax payments more simple, convenient and efficient for our customers. We look forward to a long-standing relationship with the government, providing a wide range of services, backed by our strong technology platform, digital capabilities and customer-first approach.”

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Top banks face up to Rs 800 crore hit on GST on FD insurance premiums, BFSI News, ET BFSI

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Major banks face increased costs of Rs 250 to Rs 800 crore on input tax credit on insurance paid to Deposit Insurance and Credit Guarantee Corporation (DICGC) by them on fixed deposits after the hike in insurance of deposits to Rs 5 lakh from Rs 1 lakh

The indirect tax department is questioning banks on the status of input tax credit (ITC) on the insurance paid to the DICGC.

All banks are required to insure this amount with the DICGC and pay a premium on that sum, for which an 18% GST rate is applicable.

Most banks consider GST as a cost and add it towards the available input tax credit.

Input tax credit

Input tax credit is GST paid on input services or raw materials that can be set off against a certain kind of future tax liability.

The indirect tax department is contesting the availability of input tax credit on insurance premiums.

Banks may have to shell out not only higher premiums and also incur higher tax costs due to credit disputes.

The indirect tax department claims the insurance premium paid by banks is not towards taxable output services and so they cannot input tax credit. As per the GST framework, banks can only avail half of the input tax credit available to them. The tax department claims the insurance premium is not towards the “core” function of banks.

Services free

Since most services provided by banks to fixed deposit holders are free, the tax credit cannot be used against any outgoing GST as well, it says.

SBI, Bank of Baroda, Punjab National Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank and IndusInd Bank are the major banks that may be affected.

Under the existing tax laws, there is an ongoing debate as to whether any cost that a company or a financial institution incurs due to a regulatory requirement should be considered crucial, and whether input tax credit hould be available on that.



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Fintech start-up Ezeepay plans to expand in Southern markets

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Ezeepay, a fintech start-up focussed on financial inclusion and promoting digital transactions in rural and semi-urban areas, is planning to expand its services in the southern market over the next few months, a senior official of the company said.

“After a survey, we found that companies are unable to take up their services in the rural markets of south India because of the language barrier but we have found a solution. For instance, in Odisha, we started our services by creating Ezeepay touch points with a network base of locally hired people,” Shams Tabrej, Founder and CEO, Ezeepay told BusinessLine.

“We are now expanding our presence in south India. To start with, we will hire 200 people (in the company’s role) in the five southern States. These employees will build our network base of agents and distributors. In the next 6 months, we are aiming to have over 50,000 members,” he added.

Doorstep Digital Services

Started in August 2018, the Delhi-based Ezeepay offers a range of banking and digital services to rural India including Aeps service, Aadhaar Pay, Money transfer, Micro ATM, Bank account opening. It also offers online utility services including mobile recharge, travel and hotel booking and LIC premium payment besides compliance services such as ITR filing, GST registration, MSME registration among other services.

Doorstep Digital Services (DDS) is the flagship product of Ezeepay under which it takes these digital services and banking products to the hinterlands of the country. It currently operates in Uttar Pradesh, Bihar, West Bengal, Madhya Pradesh and Jharkhand.

“We have a network of 1.78 lakh agents and distributors in the North. Our total business in the North, across all services, is about ₹800 crore. We aim to garner a monthly business of ₹500-600 crore in the southern market,” Tabrej said.

Ezeepay earns commission on each digital transaction, which is shared between the company and agents.

Target areas

Kottayam and Malappuram in Kerala, West Godavari, East Godavari and Kurnool in Andhra Pradesh, Mysuru, Belgaum and Bellary in Karnataka, Madurai, Tiruchirappalli and Vellore in Tamil Nadu and Mancherial, Nirmal and Sircilla in Telangana are some of the target areas in south for Ezeepay.

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