This circular provides clarification on the taxability of lending of securities under the Securities Lending Scheme, 1997, as prescribed by SEBI.

It explains that securities, as defined under the Securities Contracts (Regulation) Act, 1956, are neither goods nor services under the CGST Act, and therefore transactions involving disposal of securities are not taxable under GST. However, the activity of lending of securities does not amount to disposal of securities. Under the scheme, securities are temporarily lent to the borrower for a consideration in the form of a lending fee, with an obligation to return equivalent securities at the end of the lending period.

The circular clarifies that the lending fee charged by the lender has the nature of consideration for a supply of service and is taxable under GST with effect from 1 July 2017. Further, services provided by intermediaries facilitating lending and borrowing of securities are also taxable separately.

The supply of lending of securities is classifiable under Heading 997119 and attracts GST at 18%. For the period from 1 July 2017 to 30 September 2019, GST is payable by the lender under the forward charge mechanism. With effect from 1 October 2019, the liability to pay GST shifts to the borrower under the reverse charge mechanism, and the tax payable shall be IGST. The circular also clarifies that no additional IGST is payable where CGST/SGST has already been paid for the past period on the same supply