Center May Clarify GST Implications for Co-Lending Between NBFCs & Banks

The government ensures non-banking financial companies (NBFCS) that it will inspect the concerns around the charge of goods and services tax (GST) on their co-lending arrangements with banks.

As per the officials, a clarification can be furnished after the problem is seen into. Banks and NBFCs ask for the issue of GST authorities serving notices, saying it shall direct to distortion and raise the lending cost for the company, stated in a meeting with finance ministry officials.

They received queries in certain cases, and notices, to find out whether GST has been evaded in the co-lending model, with the tax heads asserting that the same is a service furnished by one co-lender to another, drawing an 18% tax.

As per the industry co-lending does not come under the service and hence is not obligated to tax. The meeting, chaired by the Department of Financial Services secretary Vivek Joshi, was attended by representatives of banks and NBFCs and representatives from the Finance Industry Development Council (FIDC) and Microfinance Institutions Network (MFIN).

Earlier FIDC had asked for clarity from the government on the problem. Banks and NBFCs raised their concerns about the GST on the co-lending arrangement as many have obtained communication in the same concern from the Directorate General of GST Intelligence, also the officials shall look into this case. Normally two or more lenders come together to extend loans through a co-lending arrangement.

Since the banks have access to new customers the model has gained popularity and the NBFCs get low-cost funds and indeed hold a share in the loan book. Under the CRISIL agency report it is anticipated to reach Rs 1 lakh crore via the co-lending book of NBFC by June 2024 in the period of rising interest from partner banks.