Banks to bear extra cost due to 18% GST on priority lending certificates

Banks have to give 40% of net lending to priority sector such as agriculture, micro enterprises, weaker sections, etc

A recent circular by the indirect tax department to impose 18 per cent goods and services tax (GST) for certificates issued on excess priority sector lending by banks would increase lenders’ cost, as these are not eligible for full input tax credit.

The Central Board of Excise and Customs (CBEC) recently clarified that Priority Sector Lending Certificates (PSLCs) would not be treated as securities but as goods. Hence, would draw an 18 per cent tax. 

PSLCs are a tool for promoting priority sector lending obligations. Banks have to give 40 per cent of net lending to priority sector such as