The Fitment Committee of the Goods and Services Tax (GST) Council is set to review the 18 per cent GST on co-lending services, following a report submitted by the SBI-led committee on co-lending. The Department of Financial Services (DFS), which had commissioned the report, had submitted a request to the Revenue department for a review of the GST on co-lending services, sources said.
“The Fitment Committee will determine the extent to which the GST rate should be reduced. There are two possible options: one is a reduction for co-lending activities related to commercial vehicle loans, which could be cut by a few percentage points, and the other is for priority sector-related activities, which could potentially be slashed to zero. However, this decision lies entirely with the committee. Afterward, it will be forwarded to the GST Council,” one of the sources added.
The SBI-led committee, which was set up to encourage co-lending between commercial banks and NBFCs, had earlier recommended the removal of the 18 per cent GST on these services at present. Union Finance Minister Nirmala Sitharaman is expected to meet her state counterparts on December 21-22 for the GST Council meeting in Jaisalmer, Rajasthan, during which the issue may come up for discussion.
The Finance Industry Development Council (FIDC), which represents NBFCs, had argued against the imposition of GST on co-lending activities in a letter to the Central Board of Indirect Taxes and Customs chairman in November last year.
“No specific service is being provided by one co-lender to the other within this arrangement. Instead, they collectively provide credit to the borrower, and the interest rate differential reflects their respective roles and risks in the joint operation. Therefore, the excess interest charged by the NBFC in a co-lending arrangement should not be considered a servicing fee subject to GST,” the letter said
Under the co-lending model, NBFCs are required to retain a minimum of 20 per cent of individual loans on their books, while the remaining balance is held by banks.
