For an ordinary taxable service supplied by a non-individual NBFC to a bank or another NBFC, the supplier generally pays GST under forward charge. A specific reverse-charge exception applies when an individual Direct Selling Agent (DSA) supplies a covered service to a bank or NBFC: the recipient pays the tax. The answer depends on the supplier’s legal form and the actual service—not simply on the recipient being a bank.
Who pays GST in the usual NBFC-to-bank transaction?
The GST Council’s agenda note states that services supplied by non-individual NBFCs—including corporate entities and partnership firms—to banks or NBFCs continue under forward charge. In that ordinary case, the supplier accounts for output GST, subject to the service being taxable and any applicable exemption. GST Council, Detailed Agenda Note, 28th GST Council Meeting.
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Forward charge describes who is responsible for paying the tax; it does not establish that every service is taxable, nor does it set a universal rate. The service’s classification and the current rate notification must be checked separately.
When does reverse charge apply?
A notified exception covers services supplied by an individual DSA to a bank or NBFC. For that covered category, the bank or NBFC receiving the service pays GST under reverse charge (RCM), rather than the individual DSA paying it under forward charge. The GST Council record describes Notification 15/2018-Central Tax (Rate) as amending Notification 13/2017-Central Tax (Rate) to specify these services for RCM. GST Council, Notification 15/2018-Central Tax (Rate).
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The distinction is tied to the notified supplier and service category. Do not assume that a company or partnership supplying DSA-related services is treated as an individual DSA; check the supplier’s legal constitution, contractual role, and the exact wording of the operative entry.
Compare the two charge mechanisms
| Supplier and covered situation | Who pays GST | Basis and qualification |
|---|---|---|
| Non-individual NBFC supplying a service to a bank or NBFC | The supplier, under forward charge | The GST Council agenda note says this treatment continues; taxable status, exemption, and rate depend on the actual supply. |
| Individual DSA supplying a covered service to a bank or NBFC | The recipient bank or NBFC, under reverse charge | Specified through Notification 15/2018-Central Tax (Rate), amending Notification 13/2017-Central Tax (Rate); confirm the entry applies to the transaction. |
Reverse charge is not triggered merely because the recipient is a bank. Section 9(3) of the CGST Act permits the government to notify categories for which the recipient is liable; the particular supply must fall within a notified category. CBIC, CGST Act, section 9.
Check the service, exemption, and rate
“NBFC services” is not one GST classification. Identify what the supplier actually provides—such as a specifically described agency or other service—and then check whether that supply is exempt, taxable, or covered by a reverse-charge entry. The CBIC lists Notification 12/2017-Central Tax (Rate) as the service-exemption notification and Notification 13/2017-Central Tax (Rate) as the reverse-charge notification. CBIC, Central Tax (Rate) Notifications.
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The available official material establishes no blanket exemption for all NBFC services to banks and no single rate for every such service. A rate should be stated only after identifying the applicable service classification and checking the current rate notification. CBIC’s sectoral FAQs discuss bank/NBFC invoicing, but invoicing provisions do not by themselves decide whether the underlying service is taxable. CBIC, Goods & Service Tax: Sectoral FAQs.
A practical decision checklist
- Identify the supplier. Establish whether it is an individual DSA, a partnership, a company, or another entity. Do not use “NBFC” as a substitute for confirming legal form and contractual role.
- Describe the actual supply. Match the service provided to the relevant notification wording; a general label such as “financial service” or “NBFC service” may not be enough.
- Test the DSA reverse-charge entry. If an individual DSA supplies a covered service to a bank or NBFC, check Notification 13/2017-Central Tax (Rate), as amended by Notification 15/2018-Central Tax (Rate), for recipient liability.
- For other non-individual NBFC supplies, check forward charge. The Council agenda note says these services to banks/NBFCs continue under forward charge, subject to the particular supply and applicable exemption.
- Verify exemption and rate. Check the exemption notification and the applicable rate/classification rather than assuming the supply is exempt or assigning one rate to all transactions.
- Confirm the tax jurisdiction. The distinction above addresses domestic supplies under the relevant GST framework. Inter-State or cross-border facts, place of supply, and the applicable IGST provisions may affect which rules apply; assess the transaction’s actual facts.
Why the DSA exception is distinct
The GST Council agenda note describes DSAs as sales agents engaged by financial institutions, with performance-linked compensation, and explains the policy choice to place tax payment for services of individual DSAs on the bank or NBFC while retaining forward charge for non-individual suppliers. That explanation provides context; the operative notification’s wording controls whether a particular arrangement falls within RCM.
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