Business facilitator
A banking company located in taxable territory.
An Agent of business correspondent
A business correspondent located in a taxable territory.
With the objective of ensuring deeper financial inclusion and increasing the outreach of the formal banking system, the Reserve Bank of India (RBI), based on the recommendations of the Khan Commission, issued guidelines in January 2006 permitting banks to engage two categories of intermediaries-Business Correspondents (BCs) and Business Facilitators (BFs). These models were created to bridge the last-mile gap in access to banking services, particularly in rural and unbanked regions.
A Business Correspondent (BC) is permitted to act as an agent of the bank and is authorised to carry out transactions such as cash deposit, withdrawal, remittances, and balance enquiries on behalf of the bank. They use biometric or electronic authentication tools and are often engaged under contractual arrangements. In contrast, a Business Facilitator (BF) is a more limited intermediary who can assist in preliminary functions such as identifying customers, collecting and verifying documents, spreading awareness about banking products, and submitting loan applications. Importantly, BFs cannot handle cash or perform banking transactions on behalf of the bank.
Under GST, services provided by BCs and BFs have been notified for differential treatment under the Reverse Charge Mechanism (RCM) through Entry Nos. 11 and 12 of Notification No. 13/2017-Central Tax (Rate). When services are provided by a BF to a banking company, RCM applies and the bank is liable to pay GST. Conversely, when an agent provides services to a BC, RCM applies and the BC must discharge the tax liability. These provisions reflect a structured two-tier model, which can be summarised as follows :-
In the case of a Business Facilitator, there are two layers of service :-
First, the service provided by an agent to the BF (such as backend support, manpower, or logistics). This is not covered under RCM. Hence, the agent must charge GST under forward charge, if registered or liable to register.
Second, the service provided by the BF to the bank. This is covered under RCM as per Entry No. 11, and the bank is required to pay GST on such services. The BF is not required to charge GST, provided their role falls within the BF model as recognised by RBI.
In contrast, the structure for a Business Correspondent works differently :-
Where an agent supplies services to a BC, such as technical or operational support, this is covered under Entry No. 12, and the BC must pay GST under RCM as recipient.
However, when the BC supplies services to a bank, such as doorstep banking or cash handling, RCM does not apply, and the BC must charge GST under forward charge, assuming they are registered or liable to register under GST.
This creates a situation where BFs are effectively kept out of the GST compliance chain, while BCs are brought into it, subject to RCM on their inward supplies and forward charge on their outward supplies to banks.
Additionally, there exists a specific exemption under Notification No. 12/2017-Central Tax (Rate), Entry No. 39, which grants relief in the following cases :-
Services provided by a BF or BC to a banking company, in respect of accounts in its rural area branches.
Services provided by intermediaries to such BFs or BCs, when they relate to the above exempt services.
Services by a BF or BC to an insurance company in a rural area.
This means that even if GST would otherwise be payable-whether under RCM or forward charge-the above services are exempt, provided the branch served is located in a rural area. This exemption applies irrespective of turnover or registration status of the supplier.
To illustrate :-
Agent providing services to BF
Agent (individual / entity)
BF providing services to Bank
Agent providing services to BC
Agent (individual / entity)
BC providing services to Bank
Services by BF / BC to a bank
In respect of accounts in rural branch
Services by intermediary to BF/BC
In relation to above exempt rural services
Services by BF / BC to insurance company
If provided in rural area