GST Fitment Committee will review 18% Tax imposed on Co-lending Services

Following a recommendation by the SBI-led co-lending committee, the Fitment Committee of the Goods and Services Tax (GST) Council will evaluate the 18% GST on co-lending services. The Department of Financial Services (DFS), which commissioned the report, asked the Revenue Department to evaluate the GST on co-lending services, according to sources.

“The Fitment Committee will determine how much the GST rate should be cut. There are two options: one is to reduce co-lending operations connected to commercial vehicle loans by a few percentage points, and the other is to reduce priority sector-related activities to zero. However, this decision is fully up to the committee. It will then be forwarded to the GST Council,” one of the sources stated.

The committee led by SBI, which was formed to boost co-lending between commercial banks and NBFCs, had advocated removing the current 18% GST on these services. Union Finance Minister Nirmala Sitharaman is due to meet with her state counterparts on December 21-22 for the GST Council meeting in Jaisalmer, Rajasthan, where the subject may be discussed.

The Finance Industry Development Council (FIDC), which represents NBFCs, advocated against imposing GST on co-lending activities in a letter to the chairperson of the Central Board of Indirect Taxes and Customs in November last year.

“No specific service is given by one co-lender to the other under this agreement. Instead, they work together to offer credit to the borrower, and the interest rate disparity reflects their distinct roles and risks in the joint operation. As a result, the extra interest charged by the NBFC under a co-lending agreement should not be regarded a servicing fee subject to GST,” the letter stated.

Under the co-lending model, NBFCs must retain at least 20% of individual loans on their books, with banks holding the remaining balance.