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

The government has assured non-banking financial companies (NBFCs) of addressing concerns regarding the imposition of Goods and Services Tax (GST) on their co-lending arrangements with banks. Finance ministry officials have stated that clarification will be provided after examining the issue. Both banks and NBFCs have expressed worries about GST authorities serving notices, fearing that it could distort operations and increase lending costs. The tax authorities assert that co-lending constitutes a service between lenders, subjecting it to an 18% tax rate. \r

However, industry representatives argue that co-lending falls outside the realm of services and should not be subject to GST. The meeting, chaired by the Department of Financial Services secretary Vivek Joshi, included representatives from banks, NBFCs, Finance Industry Development Council (FIDC), and Microfinance Institutions Network (MFIN). The co-lending model, where multiple lenders collaborate to extend loans, has gained popularity for its access to new customers for banks and low-cost funds for NBFCs, with CRISIL anticipating NBFCs' co-lending book to reach Rs 1 lakh crore by June 2024.