BANKING COMPANY GST LIABILITY
The Goods and Services Tax Act,
2017 came into force in India with effect from 1.7.2017.
The Central Government has clarified that banking company is the service provider in the business facilitator model or
the business correspondent model operated by a banking company as per RBI guidelines. Hence, banking company is the service provider in the business facilitator model or
the business correspondent model operated by a banking company as per RBI guidelines.
The banking company is
liable
to pay GST on the entire value of
service charge or fee charged
to customers whether
or not received via business facilitator or
the business correspondent.
The relevant Circular No.86/2018-GST dated
1.1.2019 is given below for ready reference.
To,
F.
No. 354/428/2018-TRU
Government of India
Ministry of
Finance
Department of Revenue
Tax research Unit
****
Room No. 156,
North Block, New Delhi, the 1st January,
2018
To
The Principal Chief Commissioners/
Chief Commissioners/
Principal
Commissioners/ Commissioner
of Central Tax (All)
/ The Principal Director Generals/ Director
Generals
(All)
Madam/Sir,
Subject: GST on Services of Business Facilitator (BF) or a Business Correspondent (BC)
to Banking Company-
reg.
Representations have been
received seeking clarification on following two issues:
(i) What is the value to be adopted for the purpose of computing GST on services provided by BF/BC to a banking company?
(ii) What is the scope of services provided by
BF/BC to a banking company with respect to
accounts in its rural area branch that
are
eligible for existing GST exemption?
2. The
matter has been examined. The issues involved are
clarified
as
follows:
2.1 Issue 1: Clarification on value of services by BF/BC to a banking company: As per RBI’s Circular
No. DBOD.No.BL.BC. 58/22.01.001/2005-2006 dated 25.01.2006 and subsequent instructions on the issue (referred to as ‘guidelines’ hereinafter), banks may pay reasonable commission/fee to the BC, the rate and quantum of which may be reviewed periodically. The agreement of banks with the BC specifically
prohibits them from directly
charging any fee to the customers for services rendered by them on behalf of the bank. On the
other hand, banks (and not BCs) are
permitted to collect reasonable service charges from the customers for such service in a transparent manner. The arrangements of banks with the
Business Correspondents specify
the requirement that the transactions are accounted for and reflected in the bank's books by end of the day or the next working day, and all agreements/
contracts with the customer shall clearly
specify that the bank is responsible to the customer for
acts of omission and commission
of the Business Facilitator/Correspondent.
2.3 Hence, banking company is the service provider in the business facilitator model or the business correspondent model operated by a banking company as per RBI guidelines. The banking company is
liable
to pay GST on the entire value of
service charge or fee charged
to customers whether
or not received via business facilitator or
the business correspondent.
3. Issue 2: Clarification on the scope of services by BF/BC to a banking company with respect to accounts in rural areas: It has also been requested that the scope
of exemption to
services provided in relation to “accounts
in its rural area branch” vide
Sl.
No. 39 of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 be clarified. This clarification has been requested as the exemption from tax on
services provided by
BF/BC is dependent
on the meaning of the expression
“accounts in its rural area branch”.
3.1 It is clarified that for the purpose of availing exemption from GST under Sl. No. 39 of said notification, the conditions flowing from the language of the notification should be satisfied. These conditions are that the services provided by
a BF/BC to a banking company
in their respective individual capacities should fall under the Heading 9971 and that such services should be with respect to accounts
in a branch located in the rural area of the banking
company. The procedure for classification of branch of a bank as located in rural area and the
services which can be provided by BF/BC, is governed by the RBI guidelines. Therefore,
classification adopted by the bank in terms of RBI guidelines in this regard should be
accepted.
4. Difficulty if any, in the implementation of this Circular may be brought to the notice of the
Board.
Yours Faithfully,
(Harish Y N)
Technical Officer, TRU
Email: harish.yn@gov.in
Tel: 011 2309 5547