This circular provides clarifications on the GST treatment of services provided by Business Facilitators (BFs) or Business Correspondents (BCs) to banking companies, focusing on valuation of such services and the scope of available exemptions.

The circular clarifies that under the RBI guidelines governing the BF/BC model, the banking company is the actual service provider to the customer. BFs/BCs act only as agents of the bank and are prohibited from charging any fee directly from customers. Banks may, however, pay a commission or fee to the BF/BC for services rendered on their behalf. Accordingly, the banking company is liable to pay GST on the entire value of service charges or fees collected from customers, irrespective of whether such amounts are received directly or through a BF/BC.

With respect to GST exemption, the circular explains the scope of exemption available under Sl. No. 39 of Notification No. 12/2017–Central Tax (Rate) for services provided by BFs/BCs in relation to accounts in rural area branches of banks. It is clarified that exemption is available only if the services fall under Heading 9971 and are provided in relation to accounts maintained at branches located in rural areas. The classification of a bank branch as rural and the nature of services permitted to be provided by BFs/BCs are to be determined strictly in accordance with RBI guidelines, and the classification adopted by the bank under those guidelines should be accepted for GST purposes.