GST on supply of securities under Securities Lending Scheme, 1997

The Central Board of Indirect Taxes and Customs (CBIC) on October 11, 2019 has issued a circular to clarify the issue relating to taxability of supply of securities under Securities Lending Scheme, 1997.

The Securities and Exchange Board of India (SEBI) introduced a scheme called ‘Securities Lending Scheme, 1997′ which was effective from 6th February 1997 to facilitate lending and borrowing of securities. Under the scheme, the Securities do not fall under the definition of goods or services. Therefore, a transaction in securities which involves disposal of securities is not a supply in GST and hence not taxable.

The Circular observes that, as the scheme clearly states that the lending of the securities and subsequent return of the equivalent securities of the same type and class by the borrower shall not be treated as ‘disposal of the securities. The clause 4 of para 4 relating to the Scheme under the Securities Lending Scheme, 1997 doesn’t treat lending of securities as disposal of securities and therefore is not excluded from the definition of services. The lender, lending the securities, would be charging the lending fees from the borrower of the securities. The lending fee charged from the borrowers of securities has the character of consideration and this activity is taxable in GST since 01.07.2017. the activities of the intermediaries facilitating lending and borrowing of securities for commission or fee are also taxable separately

For the past period i.e. from 1st July 2017 till 30th September 2019, GST is payable under forward charge by lender and the lender is liable to pay IGST. However, in case the lender has already discharged the tax liability under CGST/SGST/UTGST (treating the transaction as intra-state supply), then, the lender is not required to pay IGST. In order to calculate the IGST liability payable by the lender, the lender can request the SEBI to disclose information about the borrower.

Further it is clarified that from 1ST October 2019, GST is payable under reverse charge mechanism by the borrower

Click here to read the Circular

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