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Custodial services provided by banks or financial institutions to Foreign Portfolio Investors do not qualify as services provided to an account holder under Section 13(8)(a) of the Integrated Goods and Services Tax Act. The place of supply for these services is not determined by the location of the service provider. The place of supply is determined under the default provision of sub-section (2) of Section 13 of the Integrated Goods and Services Tax Act. Field formations must apply this clarification to ensure uniform implementation across jurisdictions.
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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 $26^\text{th}$ 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).
| 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-
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:
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. |
