Lender i.e. a person who deposits the securities registered in His name or in the name of any other person duly authorised on his behalf with an approved intermediary For the purpose of Lending under the Scheme of SEBI
Borrower i.e. a person who borrows the securities under the Scheme through an approved intermediary of SEBI
This entry is inserted through notification no 22/2019-CTR dated 30th September, 2019 and is effective from 1st October 2019. Under the Securities Lending and Borrowing Scheme, 1997, approved and regulated by SEBI, investors (lenders) deposit their securities with an approved intermediary, typically a clearing corporation or exchange-designated entity. The borrower then borrows these securities for a defined tenure, usually for the purpose of short selling, hedging, or fulfilling settlement obligations.
The lender receives a lending fee, while the borrower agrees to return equivalent securities on or before the end of the borrowing tenure.
Though no physical transfer of ownership takes place, the lending fee is considered a supply of service under GST.
Prior to this notification, GST liability on such transactions was unclear, and varied interpretations led to compliance difficulties. Since lenders are often retail investors or small institutions not registered under GST, placing the tax liability on the borrower (typically a financial institution or broker) ensures easier administration and compliance.
The Scheme mandates that lending and borrowing be routed only through an approved intermediary, such as the National Securities Clearing Corporation
(NSCCL) or other SEBI-designated entities. These intermediaries act as facilitators and custodians, ensuring proper settlement, record-keeping, and transfer protocols.
It is important to note that intermediaries themselves are not liable under RCM; the borrower of securities is.
Mr. A lends 500 shares of XYZ Ltd. through NSCCL to M/s Beta Securities Pvt. Ltd., a registered broker, under the SEBI Scheme.
Mr. A is the lender,
Beta Securities is the borrower, NSCCL is the approved intermediary.
Here, M/s Beta Securities Pvt. Ltd. is required to pay 18% GST on the lending fee under RCM.
A mutual fund lends securities to a clearing member for temporary transfer. Since the transaction is under the SLBS and routed through a SEBI- approved intermediary, GST is payable by the borrower under RCM.
Value of supply is the lending fee charged by the lender to the borrower.
Lending does not involve transfer of ownership of securities, so only the fee for temporary lending is subject to GST.
The borrower must self-invoice under RCM and discharge liability in GSTR-3B and can claim ITC if eligible.