NBFCs, banks agree on GST levy on co-lending charges
Co-lending charges levied by non-banking finance companies (NBFCs) will soon be subjected to 18% Goods and Service Tax. The levy may be on 0.5-1% of the loan amount.
This follows the NBFCs and banks having agreed to the presence of a service component in such arrangements, ending months of wrangling over the matter, sources told FE.
The move comes at a time when co-lending is given a policy boost by the Reserve Bank of India. Co-lending assets under management (AUM) of NBFCs is believed to have crossed Rs 1 lakh crore. The model, introduced six years ago, is seen to grow at a robust rate of 35-40% annually.
Currently NBFCs largely source loan proposals in co-lending with banks. However, no GST is paid on the service charges, as NBFCs argue that extra interest corned by them in such cases is “income.”
Typically, in co-lending arrangements (CLAs), sourcing NBFCs finance 20% of the loan amount to the customer, while banks finance 80%.
The levy of GST on service charges in co-lending activities will likely be taken up in the next GST Council meeting, the sources said, adding that it would provide complete clarity on the matter.
According to the sources, the department of revenue has asked Finance Industry Development Council (FIDC), a representative body of the NBFCs, to provide a proposal regarding the minimum value of service charges in CLAs at the earliest. This would serve as a floor.
While co-lending partners would retain the flexibility to determine the actual charges, GST would apply on the higher of this minimum or the actual charge.
