📰 GST on Co-Lending Charges: NBFCs and Banks Reach Agreement
GST on co-lending charges will soon become a reality, as non-banking finance companies (NBFCs) and banks have reached a consensus on treating co-lending fees as taxable services. This development could end months of debate and bring much-needed clarity to a fast-growing financial model.
📈 Co-Lending Gains Momentum Amid RBI Push
Co-lending has seen a major boost from the Reserve Bank of India (RBI). According to Crisil, NBFCs’ co-lending assets under management (AUM) have crossed ₹1 lakh crore, growing at a rate of 35–40% annually. In most cases, NBFCs originate the loans, funding 20%, while banks fund the remaining 80%.
Until now, NBFCs claimed that the additional interest they earned was purely “income,” not a service fee, and thus not liable for GST. However, after several rounds of discussion, both NBFCs and banks acknowledged the presence of a service component in these transactions.
🧾 How GST Will Be Applied
The government plans to levy 18% GST on co-lending service charges, which typically range from 0.5% to 1% of the loan amount. The GST Council is expected to take up this proposal in its upcoming meeting.
The Department of Revenue has asked the Finance Industry Development Council (FIDC) to propose a floor value for service charges in co-lending arrangements. GST will apply to either the minimum floor or the actual charge—whichever is higher.
🏛️ Dialogue and Investigations
The FIDC, Indian Banks Association, Department of Financial Services, and Revenue Department have held multiple discussions to clarify the issue. Meanwhile, the Directorate General of GST Intelligence (DGGI) has been probing possible tax evasion in co-lending transactions.
Despite FIDC’s earlier position that excess interest spread was “interest income” and not a fee, the new stance marks a turning point in tax treatment. NBFCs previously argued that this income was already taxed under income tax laws and did not represent a service.
📜 Revised Guidelines May Expand GST Scope
The RBI’s proposed changes to the co-lending framework aim to include a broader set of financial institutions. Notably, the new draft covers all loan segments, not just those under priority sector lending (PSL). This means GST rules may soon apply to a wider co-lending landscape.
🔍 Summary
- GST Rate: 18% on co-lending service charges.
- Applies To: Minimum floor value or actual charge, whichever is higher.
- RBI Push: Co-lending space expanding with policy support.
- NBFCs’ View Shifted: Now accept service component in the model.
- Upcoming Move: GST Council to finalize levy and framework soon.
