Banking Services to SEZ Units Out of Tax Net

Dec. 11, 2006 – The Central Board of Excise and Customs (CBEC) has confirmed the government decision of exempting banking services to units positioned in any of the special economic zones from payment of service tax. The confirmation was made in response to the query raised by Indian Banks Association (IBA).

This comes as a welcome relief both for the banks and the promoters of SEZs. Even though there was perceptible rush among banks for setting up OBUs (offshore banking units) in SEZs, the trend is limited to sectors governed by the crysts and troughs of the global economy, such as commodity export. The global commodity export prices had earlier seen a significant downturn and that had consequently affected the business of OBUs.

This had been a major reason why RBI has decided to limit license allotment to banks to set up OBUs in SEZs. Earlier tax on banking services had been raised to 12% from 10%. This includes essentially money transfer through different modes like electronic fund transfer and banking services to issuers of capital market instruments.

RNCOS’ recent report -“Indian Banking Sector Analysis (2006-2007)”, talks about the emerging prospects of the Banking sector in India. As per views by a senior research analyst at RNCOS -“the burgeoning economic activity and encouraging prospects of growth in SEZs such as exemption from CRR (cash reserve ratio) and SLR (statutory liquidity ratio) and other statutory pre-emptions, will fuel the business of OBUs.” It’s also predicted that since OBUs will observe international lending rates, service-based revenue will increase considerably.

This report throws light on certain critical aspects of the banking sector environment through:

– Insights into the trends in Indian Banking Sector.
– Pinpointing factors driving growth.
– Assessing the opportunities, strategies and challenges in the Indian Banking Sector.
– Identifying brand leaders and understanding the competitive environment
– The services driving Banking Sector in India.

The report further provides extensive research and objective analysis on the growing banking sector services in India.

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