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Applicability of GST on Priority Sector Lending Certificate

Last updated : December 17th, 2019 05:21 pm

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.

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