Banks to bear extra cost due to 18% GST on priority lending certificate

Banks must grant 40% of net loans to the priority sector, such as agriculture, microenterprises, weaker sections, etc. A recent circular from the indirect tax department to impose an 18 percent tax on goods and services for certificates issued by banks with excessive priority loans would increase the cost of the lenders since they are not eligible for the total tax credit.

The Central Board of Excise and Customs (CBEC) recently clarified that Priority Sector Loan Certificates (PSLC) would not be treated as securities but as assets. Therefore, I would draw a tax of 18 percent. The PSLCs are a tool to promote the loan obligations of the priority sector.

Banks must grant 40 percent of net loans to the priority sector, such as agriculture, microenterprises, weaker sections, etc. If a bank grants an excessive amount of priority loans, you will obtain these certificates. Banks that do not reach the goal must buy them. Suppose that a bank lends 105 rupees to agriculture, while its requirement was only 100 rupees.

PSLCs are taxable as goods at a standard rate of 18 percent

Then you will get a certificate of Rs 5. This certificate can be loaned to any other bank that needs it. CBEC said there was no exemption for trade in PSLC under GST.

Therefore, PSLCs are taxable as goods at a standard rate of 18 percent under the residual item.

The average tax must be paid by the bank

However, there is a relief. The GST payable on the certificates would be available as an entry tax credit for the lenders who buy them.

Therefore, the remaining 50 percent would become a cost. Therefore, there would be an additional burden of taxes on the banks in the coming days, he added. Rastogi also suggested that the GST be collected in the collect mechanism since it is difficult to find the buyer of these certificates since these are marketed through e-Kuber, a Core Banking solution In reverse, it is the seller who pays GST instead of the buyer. That average tax must be paid by the bank that provides 105 rupees, instead of the buyer of that certificate.