gst: Take FPI custody companies out of GST: Lenders to authorities

Lenders, in a illustration to the finance ministry despatched final month, have argued that these companies had been akin to exports and therefore not liable to GST.

ET Bureau

The problem cropped up throughout the GST audit of some international banks and lenders anticipate tax calls for notices since 2017 when the brand new oblique tax was rolled out in the end. Belongings below custody (AUC) stood at ₹48.7 lakh crore in March 2023, declining from ₹50.94 lakh crore in March 2022, exhibits knowledge.

Companies offered by a custodian financial institution embody safekeeping, settlement, and reporting of consumers’ marketable securities and money. In India, most banks provide such companies for each onshore and offshore funding actions.

“We now have raised this challenge with related authorities within the authorities, together with the finance ministry. The thought is to keep away from pointless litigation and blockage of funds. We anticipate the federal government to provide readability on the matter and challenge instructions to discipline formations,” mentioned a financial institution government.

One other banker mentioned that the GST authorities had raised this challenge throughout the audit of some international banks. “Banks had been advised that since securities dealt with by custodian banks are bodily items that keep throughout the nation, the companies will probably be thought-about home companies and liable to GST,” he mentioned.Bankers have been treating these companies as zero-rated provides or exports for taxation functions below GST, he added.They’ve of their illustration, seen by ET, have argued that since international portfolio buyers, or FPIs, are situated outdoors India and haven’t any enterprise institution in India, the place of provide for these companies is the situation of the service recipient, which is outdoors India and, therefore, qualify as export. “This place existed within the outdated companies tax regime,” the above-quoted financial institution government mentioned.

Specialists opine that lenders even have robust reasoning for contemplating these companies as exports.

“There’s a view throughout the authorities to deal with custodian companies as performance-based companies. In that case, the taxation coverage is relevant on the idea of the place the companies are carried out, which on this case will probably be India, and therefore attracts an 18% tax fee on the revenues,” mentioned Abhishek Jain, Nationwide Head, Oblique Tax at consulting agency KPMG.

“There’s a want for clarification on this challenge, or in any other case it’s going to result in litigation, as lenders even have robust grounds,” he added.

As per business studies, the India marketplace for custody companies continues to be lower than 2% of the worldwide market.

The main purchasers for such companies are international buyers, mutual funds, and insurance coverage firms.