Banks to get GST Payouts on PSLCs

Banks to get GST Payouts on PSLCs

The Government of India has brought out Priority Sector Lending Certificates under the reverse charge mechanism for Goods and Services Tax.    The decision has been taken by the Finance Ministry and a notification issued to that effect stating that any registered person will now come under the purview of reverse charge. Through this, banks getting the PSLCs can now pay the tax and get the credit based on the bill or challan.

  1. Banks are under obligation to extend 40% of their net lending to priority sectors like Agriculture, MSMEs and weaker sections.
  2. PSLCs are used to ensure that the banks meet their Priority Sector targets and incentivise them to increase their lending.
  3. In the event of a bank’s not being able to meet the target, they can buy the instrument from another bank which might have a surplus.
  4. The Finance Ministry had in March this year stated that these certificates are in the nature of goods and would attract 18% GST. Obviously this means an additional tax burden on banks, though the selling bank is able to claim about 50% through the tax credit by way of inputs.
  5. Additionally these certificates are traded online on e-Kuber, a Core Banking Solution and it has become a challenge to find the buyer bank.
  6. The crystallisation of long pending issue of reversal of charge on the sale of Priority Sector lending sector is welcomed by banks. Before this, the GST paid on the purchase of these certificates was a cost since the buyer was not known to the seller.  Since the GST can now be reverse charged, credits can now be claimed by banks.

Bankers are also hoping that the GST rate however on this should be reduced further.

 

NOTE:

Purpose:

PSLCs are issued to enable banks to achieve the priority sector lending target and sub-targets by purchase of these instruments in the event of shortfall and at the same time incentivize the surplus banks; thereby enhancing lending to the categories under priority sector.

Illustration:

  • Bank A may sell PSLCs with a nominal value of ₹100 crores to Bank B on July 15, 2016. Bank B will reckon ₹ 100 crore towards its priority sector achievement as on the reporting dates of September 30, 2016, December 31, 2016 & March 31, 2017, while Bank A will subtract the same from its achievement figures for the respective reporting dates. The PSLC will expire by March 31, 2017.
  • Bank C may buy ₹ 100 crore PSLC on March 30, 2017 from Bank D. Bank D will subtract ₹ 100 crore from its PSL reporting on March 31, 2017 while Bank C will reckon the same towards its achievement. The PSLC will expire by March 31, 2017.

 

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