Applicability of GST on Priority Sector Lending Certificate

Priority Sector Lending Certificate is a tradable certificate which is issued against the priority sector loans of the banks. Priority Sector Lending Certificate is a tool for promoting comparative advantages amongst the banks while they meet their priority sector lending obligations. Present article highlights the applicability of

GST on the said Priority Sector Lending Certificate from the date of introduction of GST i.e. 01.07.2017 till date. 1

Clarification on Levy of GST on Priority Sector Lending Certificate

Vide circular no. 62/36/2018-GST dated 12

th September 2018 it had been clarified by the board that for the period starting from 1st July 2017 till 27th May 2018, GST on Priority Sector Lending Certificate would be paid by the seller bank. GST would be payable on the forward charge basis and GST would be payable @ 12%.

Applicability of Reverse Charge Mechanism on Priority Sector Lending Certificate

Vide notification no. 11/2018- Central Tax (Rate) dated 28

th May 2018, reverse charge mechanism has been made applicable on GST payable on Priority Sector Lending Certificate. The effect of the said notification was that from 28th May 2018 onwards, GST on Priority Sector Lending Certificate was payable by the buyer bank on a reverse charge basis.

Clarification on Nature of Supply of Priority Sector Lending Certificate

Vide circular no. 93/12/2019-GST dated 8

th March 2019, the nature of the supply of Priority Sector Lending Certificate has been clarified. The Board vide the said circular clarified that the nature of the supply of Priority Sector Lending Certificate should be treated as a supply of goods in the course of inter-state trade or commerce. Concluding thereby that since the trading of Priority Sector Lending Certificate would be treated as the ‘supply of goods in the course of inter-State trade or commerce’, IGST shall be payable on the same. It has further been clarified by the board that IGST shall be payable for the period starting from 1st July 2017 till 27th May 2018 and also from 28th May 2018 onwards on the supply of Priority Sector Lending Certificate. Board has also clarified that in cases, wherein, the bank has already paid CGST / SGST or CGST / UTGST instead of IGST, such banks for payment already made shall not be required to pay IGST towards such supply.

Synopsis of the above Discussion

Summing up all the above notification and circular issued with regard to GST applicability on Priority Sector Lending Certificate and its effect thereon has been provided in the below-mentioned table –

Sr. No.	Period	Relevant Notification / Circular	Tax Position
1	1st July 2017 till 27th May 2018	Circular no. 62/36/2018-GST dated 12th September 2018	GST payable by the seller bank on a forward charge basis. Applicable GST rate is 12%.
2	From 28th May 2018 onwards	Notification no. 11/2018- Central Tax (Rate) dated 28th May 2018	GST payable by buyer bank on trading of Priority Sector Lending Certificate on a reverse charge basis.
3	Clarification on nature of supply for the period 1st July 2017 to 27th May 2018 and also from 28th May 2018 onwards	Circular no. 93/12/2019-GST dated 8th March 2019	IGST would be payable on the trading of Priority Sector Lending Certificate.

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Frequently Asked Questions

Common questions about GST on Priority Sector Lending Certificate India.

A Priority Sector Lending Certificate (PSLC) is a tradable certificate issued by banks against their priority sector loans. It is a tool that allows banks to meet their priority sector lending obligations by purchasing PSLCs from banks that have exceeded their lending targets.

The GST was introduced on PSLCs to bring uniformity and clarity in the taxation of these certificates, which were previously untaxed. The GST regime aimed to simplify the tax structure and ensure compliance across various sectors.

From July 1, 2017, to May 27, 2018, the seller bank was required to pay GST on PSLCs on a forward charge basis at a rate of 12%.

Effective from May 28, 2018, the reverse charge mechanism was made applicable for GST payable on PSLCs. This meant that the buyer bank was required to pay GST on PSLCs on a reverse charge basis.

In March 2019, the authorities clarified that the nature of the supply of PSLCs should be treated as a supply of goods in the course of inter-state trade or commerce. Consequently, IGST (Integrated Goods and Services Tax) became applicable on PSLCs.

The authorities clarified that IGST should be paid on PSLCs for the period from July 1, 2017, to May 27, 2018, and also from May 28, 2018, onwards. However, if banks had already paid CGST/SGST or CGST/UTGST instead of IGST, they were not required to pay IGST again.

The reverse charge mechanism ensures that the tax liability is borne by the buyer bank, which is typically better equipped to handle tax compliance and reporting requirements compared to the seller bank.

By trading PSLCs, banks that have exceeded their priority sector lending targets can sell these certificates to banks that are falling short of their targets. This mechanism allows for efficient resource allocation and helps banks meet their lending obligations.

Clarifying the nature of the supply of PSLCs as a supply of goods in the course of inter-state trade or commerce was crucial for determining the applicable GST rate and ensuring uniform taxation across states.

The introduction of GST on PSLCs and the subsequent clarifications on tax rates and the nature of supply aimed to provide clarity and streamline the taxation process for banks trading these certificates. This helped in creating a more transparent and efficient trading environment for PSLCs.