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Repair Windows errors before they cause bigger problemsFix Now →Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Not automatically. An NBFC’s service to a bank does not attract 18% GST solely because of who supplies it and who receives it. The result depends on the service and its classification, whether an exemption applies, and whether a specific reverse-charge entry covers the transaction. Interest or discount on a qualifying loan, advance, or deposit is treated differently from separate fees charged for related services.
How GST treatment depends on the transaction
To determine the GST treatment, identify what the NBFC actually supplies and classify that service under the applicable rate notification. Then check whether the supply qualifies for an exemption or falls within a specifically notified reverse-charge category. The headline alone does not establish a rate for every NBFC-to-bank contract.
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CBIC lists the service-rate notification, 11/2017-Central Tax (Rate), separately from the service-exemption notification, 12/2017-Central Tax (Rate). The CBIC Central Tax (Rate) notification index is a starting point for locating these notification families and amendments; it does not classify an unnamed service or settle a particular contract.
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Are interest and service charges treated differently?
Yes. CBIC’s Sectoral FAQs explain that the exemption for extending loans, advances, or deposits applies to the extent the consideration is represented by interest or discount. The FAQ addresses charges collected in addition to that interest or discount, stating: “Any charges or amounts collected over and above the interest or discount would represent taxable consideration and hence liable to GST.”
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That distinction means a separately stated processing, documentation, administrative, or service fee should not be assumed to share the treatment of the interest or discount. The FAQ establishes that such additional charges are taxable consideration; it does not, by itself, identify the applicable rate for every fee or decide every NBFC-to-bank arrangement. Classification and the current rate entry still need to be checked.
When can reverse charge apply?
Reverse charge is not a general rule for all services supplied by an NBFC to a bank. CBIC notifications include specific categories involving banks and NBFCs, including certain services supplied by individual direct selling agents (DSAs) to banks or NBFCs, and recovery-agent services supplied to banks, financial institutions, or NBFCs.
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- Individual DSA services: Check the applicable amendment and its conditions. The GST Council entry for Notification 15/2018-Central Tax (Rate) describes the DSA reverse-charge amendment.
- Recovery-agent services: The original category appears in Notification No. 13/2017-Central Tax (Rate). Apply it only where the transaction meets the entry’s terms.
These examples cannot be extended to a different NBFC service just because a bank is the recipient. Verify the current notification wording and subsequent amendments before deciding who must discharge GST.
What to check before deciding the GST treatment
- Identify the supply: Read the agreement and invoice description to establish the actual service, rather than relying only on a broad label such as “NBFC services.”
- Separate the consideration: Distinguish interest or discount from any separately charged fee, commission, or other amount.
- Check exemption eligibility: Confirm whether the relevant supply and consideration fall within the applicable exemption notification.
- Check reverse charge: Look for a specifically notified category that matches the supplier, recipient, and service. Do not infer reverse charge from the parties’ identities alone.
- Verify the current rate and facts: Review the applicable rate entry and amendments, the parties’ GST status and locations, and any relevant notification or circular. The GST outcome can turn on details not apparent from the headline.
Keep related regulatory guidance in scope
CBIC’s Circular No. 245/02/2025-GST concerns GST treatment of penal charges levied by regulated entities; it is relevant when the amount in question is a penal charge, not as a general rule for unrelated fees. The RBI’s Master Circular on Bank Finance to NBFCs, RBI/2025-26/15 provides banking regulatory context and does not set GST rates.
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