Introduction

Under the Securities Lending and Borrowing Mechanism (SLBM) regulated by SEBI, investors can borrow securities for short-term needs.

A crucial compliance question arises:

Who pays GST on lending/borrowing fees?

This article explains GST liability for clients (borrowers) under the Reverse Charge Mechanism (RCM).

Taxability Framework under GST

• Securities transactions → Not taxable
• Lending/borrowing fees → Taxable as services

RCM Applicability

As per notifications under the CGST Act 2017:

• GST on SLBM lending fees is payable under RCM
• Borrower of securities is liable to pay GST

Who is Responsible?

👉 If you are:

• Borrowing securities through SLBM

➡️ You are:

• Recipient of service
• Liable to pay GST under RCM

Impact on Unregistered Clients

📌 Important Rule

• RCM liability applies irrespective of turnover

👉 Therefore:

If borrower is:

• Not registered under GST

➡️ Then:

• Registration becomes mandatory
• GST must be paid under RCM

Scenario Table

Input Tax Credit (ITC)

• GST paid under RCM can be claimed as ITC
• Subject to:
  • Registration
  • Eligibility conditions

Compliance Requirements

Borrowers must:

• Obtain GST registration (if not already registered)
• Pay GST under RCM
• File GST returns

Practical Reality

• Many retail investors:
  • Are unaware of RCM
  • Do not comply

However:

Legal liability still exists, and non-compliance may result in:

• Interest
• Penalties

Example

• Lending fee paid: ₹10,000
• GST @18% = ₹1,800

👉 Borrower must:

• Pay ₹1,800 under RCM

Conclusion

In SLBM transactions, the borrower of securities is liable to discharge GST under RCM, irrespective of registration status or turnover.

Proper compliance ensures:

• Avoidance of litigation
• Seamless ITC benefit

Disclaimer

This article is intended for educational purposes only and does not constitute professional advice. Readers should consult their professional advisor before acting on this information.