Circular No 220/14/2024-GST
F. No. CBIC-20001/4/2024-GST
Government of India
Ministry of Finance
Department of Revenue
Central Board of Indirect Taxes and Customs
GST Policy Wing
North Block, New Delhi
Dated the 26
th
June, 2024
To,
The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/
Commissioners of Central Tax (All)
The Principal Directors General/ Directors General (All)
Madam/ Sir,
Subject: Clarification on place of supply applicable for custodial services provided by
banks to Foreign Portfolio Investors-reg
Representations have been received seeking clarification on the Place of Supply in cases
of Custodial Services provided by Banks to Foreign Portfolio Investors (hereinafter referred to
as “FPIs”), as a view is being taken by some field formations that the Place of Supply in case of
‘custodial service’ would be determined as per Section 13(8)(a) of the Integrated Goods and
Services Tax Act, 2017 (hereinafter referred to as “IGST Act”), i.e. the location of the service
provider (banks or financial institutions).
2. In order to clarify the issue and to ensure uniformity in the implementation of the
provisions of law across the field formations, the Board, in exercise of its powers conferred by
section 168(1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as
“CGST Act”), hereby clarifies the issue as under:
Issue Clarification
Whether the activity of
providing Custodial
Services by banks or
financial institutions to
FPIs will be treated as
services provided to
'account holder' under
Section 13(8)(a) of the
IGST Act, 2017?
Further, how the place
of supply of the said
services shall be
determined?
According to the Securities and Exchange Board of India
(Custodian of Securities) Regulations 1996, ‘Custodial Services’
in relation to securities means safekeeping of securities of a client
and providing services incidental thereto, and includes-
• maintaining accounts of securities of a client;
• collecting the benefits or rights accruing to the client in
respect of securities;
• keeping the client informed of the actions taken or to be
taken by the issuer of securities, having a bearing on the
benefits or rights accruing to the client; and
• maintaining and reconciling records of the services
referred above.
As per Regulation 20(1) of the Securities and Exchange Board of
India (Foreign Portfolio Investors) Regulations, 2019, an FPI is
allowed to invest only in the following securities, namely-
(a) shares, debentures and warrants issued by a body corporate;
listed or to be listed on a recognized stock exchange in India;
(b) units of schemes launched by mutual funds under Chapter V,
VI-A and VI-B of the Securities and Exchange Board of
India (Mutual Fund) Regulations, 1996;
(c) units of schemes floated by a Collective Investment Scheme
in accordance with the Securities and Exchange Board of
India (Collective Investment Schemes) Regulations, 1999;
(d) derivatives traded on a recognized stock exchange;
(e) units of real estate investment trusts, infrastructure
investment trusts and units of Category III Alternative
Investment Funds registered with the Board;
(f) Indian Depository Receipts;
(g) any debt securities or other instruments as permitted by the
Reserve Bank of India for foreign portfolio investors to invest
in from time to time; and
(h) such other instruments as specified by the Board from time
to time.
Various banks enter into custodial agreements with the Foreign
Portfolio Investors (FPIs) for the provision of such custodial
services. The main activity carried out by banks as a custodian in
relation to custodial services is maintaining account of the
securities held by the FPIs.
As per clause (a) of sub-section (8) of section 13 of IGST
Act, Place of Supply of services supplied by banking company or
a financial institution or a non-banking company to account
holders shall be the location of the supplier of services.
As per Explanation (a) of Section 13(8) of IGST Act, ‘account’
means an account bearing interest to the depositor, and includes
a non-resident external account and a non-resident ordinary
account.
It is mentioned that the provisions similar to above
provisions under IGST Act existed during the Service Tax
regime. The place of provision of service under Service Tax was
governed by the Service Tax Place of Provision of Supply Rules,
2012. Provisions of Rule 9(a) of the Service Tax Place of
Provision of Supply Rules, 2012 were identical to that of section
13(8)(a) of the IGST Act. The Education Guide under the Service
Tax Law clarified the scope of the term “account holder” and the
services provided by banks to account holders as well as the
services which are not provided to account holders, as below:
“Question: 5.9.2 What is the meaning of "account
holder"? Which accounts are not covered by this rule?
Answer: "Account" has been defined in the rules to mean
an account which bears an interest to the depositor.
Services provided to holders of demand deposits, term
deposits, NRE (non-resident external) accounts and NRO
(non-resident ordinary) accounts will be covered under
this rule.
Question:5.9.3 What are the services that are provided by
a banking company to an account holder (holder of an
account bearing interest to the depositor)?
Answer: Following are examples of services that are
provided by a banking company or financial institution to
an “account holder”, in the ordinary course of business
:-
i) services linked to or requiring opening and
operation of bank accounts such as lending,
deposits, safe deposit locker etc;
ii) transfer of money including telegraphic transfer,
mail transfer, electronic transfer etc.
Question:5.9.4 What are the services that are not
provided by a banking company or financial institution to
an account holder, in the ordinary course of business, and
will consequently be covered under another Rule?
Answer: Following are examples of services that are
generally NOT provided by a banking company or
financial institution to an account holder (holder of a
deposit account bearing interest), in the ordinary course
of business:-
i) financial leasing services including equipment
leasing and hire purchase;
ii) merchant banking services;
iii) Securities and foreign exchange (forex) broking,
and purchase or sale of foreign currency, including
money changing;
iv) asset management including portfolio management,
all forms of fund management, pension fund
management, custodial, depository and trust
services
In the case of any service which does not qualify as
a service provided to an account holder, the place
of provision will be determined under the default
rule i.e. the Main Rule 3. Thus, it will be the
location of the service receiver where it is known
(ascertainable in the ordinary course of business),
and the location of the service provider otherwise.”
Accordingly, as per clarification given in Education Guide
under Service Tax Regime, the custodial services are not
considered to be covered under the services provided by bank to
account holders, but have been considered to be covered under
the services which are not provided to account holder.
As the provisions of section 13(8)(a) of the IGST Act are
similar to the provisions of Rule 9(a) of the Service Tax Place of
Provision of Supply Rules, 2012, the clarification given in the
Education Guide under Service Tax Regime is equally
applicable under GST Regime.
Accordingly, it is clarified that the custodial services
provided by banks or financial institutions to FPIs are not to be
treated as services provided to 'account holder' and therefore, the
said services are not covered under Section 13(8)(a) of the IGST
Act. Therefore, the place of supply of such services is not to be
determined under Section 13(8)(a) of the IGST Act but has to be
determined under the default provision i.e., sub-section (2) of
section 13 of the IGST Act.
2. It is requested that suitable trade notices may be issued to publicize the contents of this
Circular.
3. Difficulty, if any, in implementation of the above instructions may please be brought to
the notice of the Board. Hindi version would follow.
(Sanjay Mangal)
Principal Commissioner (GST)
