Applicability of GST on Priority Sector Lending Certificate
Only a few goods and services are left to be brought under the ambit of GST. The recent inclusion of the Priority Sector Lending Certificate (PSLC) in GST has been made by the Central Board of Indirect Taxes (“CBIC”) for curbing inappropriate and unauthorized lending practices made by banks in the name of priority sector.
What is the Priority Sector Lending Certificate (PSLC)?
Priority Sector lending certificate (PSLCs) are tradable instruments issued as certificates against priority sector lending by banks. The certificates help banks to meet their lending goals specified for the priority sector. Buyers of PSLC are generally those banks who are not able to meet there required target of lending priority sector. Thus, banks moving ahead of their targets issues PSLC to non-achievers to balance the flow of lending and credit.
The basic thing to note about these certificates is that these are issued only between banks and the risk on account of credit made by over-performing banks, does not transfer with the issue of certificates to other banks.
The four specified types of PSLC include :
PSLC Agriculture: PSLC issued for agriculture sub lending target.
PSLC Micro Enterprises: PSLC issued for Micro-enterprises sub lending target
PSLC SF/MF: PSLC issued for Small and Marginal farmers sub lending target
PSLC General: PSLC issued for correspondingly balancing the overall lending target.
Applicability of GST on PSLC
Under Goods & Services Tax Act (“GST Act”), goods being every kind of movable property other than money and securities but including actionable claims, growing crops and things attached to the earth or being part of the land agreed to be severed before supply are subject to tax. Whereas Services has been stated as anything other than goods, money, and securities.
To understand the applicability of GST on PSLC, it is necessary to know whether PSLC is termed as securities or not – as securities do not count for taxable supplies.
Section 2 of the Central Goods & Services Act, 2017 (“CGST Act”), specifies for the definition of securities as :
– Shares, stock, bonds, scripts, debentures, debenture stocks or other marketable securities alike of any body corporate or company;
– Rights or interest in Securities;
– Units or instruments issued by any collective investment scheme to investors interested in such schemes;
-Instruments declared by CG as securities etc
Thus, as per the above definition, PSLCs issued by banks does not transfer any risk, loan assets, interest or any right, hence, PSLC does not fall under the definition of securities. They have an intrinsic value of their own and are to be taxed at normal rates like other taxable goods under GST.
Note: Reserve bank of India (“RBI”) has also mentioned for the taxability and dealing of PSLCs as a permissible activity as per Section 6 of the Banking Regulation Act w.e.f. notification dated 4th Feb 2016.
Levy of GST on PSLC
For trading on e-Kuber portal and imposition of GST on Priority Sector lending certificate the following provisions have been laid forward by Ministry of Finance :
- The circular issued by CBIC dated 12th September 2018 clarified that GST on PSLCs starting from period 1.7.2017 to 27.05.2018 will be paid by the seller bank on a forward charge basis at the rate of 12%. Whereas from 27.05.2018 onwards, the charge would be paid by the buyer bank on reverse charge mechanism(“RCM”).
- The trade of PSLCs among banks will be considered as an Interstate trade or commerce transaction.
- Being treated as an inter-state supply, Integrated Tax (“IGST”) shall become payable on such transactions.
- It was also specified that if banks have already paid CGST/UTGST/SGST instead of IGST with reference to such transactions, such banks would not be required to pay IGST for such relevant period.
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