CBIC
Clarifies GST Applicability on R&D Services, Foreign Shipping Companies,
Motor Vehicle Leasing, Banking and NBFC Co-Lending Services
CBIC has issued Circular No. 266/12/2026-GST dated
28 October 2026, providing clarifications on GST applicability on various
services based on recommendations of the 57th GST Council meeting. The key
clarifications are:
1. R&D vs Consultancy Services: A
self-certification issued by the head of an eligible government entity,
research association, university, college or notified institution, confirming
that the activity is research and development and not consultancy, may suffice
for claiming GST exemption under Entry 44A of Notification No. 12/2017-Central
Tax (Rate).
2. Import of Services by Foreign Shipping Companies:
GST payment on import of services without consideration by an Indian
establishment of a foreign shipping company from related overseas entities has
been regularised on an 'as is where is' basis for the period 1 July 2017 to 31
October 2026. The exemption is effective from 1 November 2026.
3. Motor Vehicle Leasing: Registration charges, road
tax, insurance premiums, FASTag charges and other
statutory or incidental expenses recovered by the lessor from the lessee will
form part of the composite supply of leasing services and attract the
applicable GST rate.
4. TRAI Status under GST: The Telecom Regulatory
Authority of India (TRAI) is not considered 'Government' under Section 2(53) of
the CGST Act, 2017, as it is a separate statutory regulatory authority.
5. Fund Transfer Pricing in Banks: Notional interest
recorded under the Fund Transfer Pricing (FTP) mechanism for internal fund
transfers between bank branches is covered by the definition of 'interest' and
is exempt from GST under Notification No. 12/2017-Central Tax (Rate).
6. NBFC Co-Lending Services: Services provided by
NBFCs to banks under co-lending arrangements, including customer sourcing, KYC,
credit appraisal, underwriting, loan servicing, monitoring and recovery, are
taxable under GST. The taxable value will be the amount specified in the
contractual agreement between the NBFC and the bank.
[CBIC Circular No. 266/12/2026-GST dated 28
October 2026]
Subject: Clarifications regarding applicability of GST on
certain services.
Based on the
recommendations of the GST Council in its 57th meeting held on 8th
October 2026, and in exercise of the powers conferred under section 168(1) of
the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the
CGST Act), the following clarifications are being issued to ensure unifo1mity
in interpretation:
2. Clarification regarding the distinction between research
& development and consultancy services based on a self-certification
mechanism.
2.2. The matter has been
examined. The terms 'research', 'research
and development (R&D)', 'consulting'
or 'consultancy' are not defined
under the CGST Act, 2017, rules or notifications issued thereunder. The said
terms are also not defined in the explanatory notes to the scheme of classification
of services under GST. It is observed that owing to the scientific and
technical nature of such activities, there may be an overlap between research
and development (R&D) services and consultancy services and accordingly,
there may be a possibility that consultancy services are wrongly classified as
R&D services or vice versa.
2.3. Accordingly, where an exemption is claimed
under Entry 44A of Notification No. 12/2017- Central Tax (Rate) in respect of
research and development services undertaken against consideration received in
the form of grants, a certificate issued by the head of the concerned
government entity, research association, university, college or other
institution notified under clauses (ii) or (iii) of sub-section (1) of section
35 of the Income-tax Act, 1961, clarifying that the activity undertaken is in
the nature of research & development and not in the nature of consultancy,
may suffice for the purpose of claiming the said exemption.
3.1 The GST Council in its 57th meeting has recommended to exempt
import of services by an Indian establishment of a foreign shipping company from a related
person or any of its establishment outside India, when made without
consideration. Accordingly, this has been given effect from 01.11.2026 vide
Notification No. 07/2026-Integrated Tax (Rate) dated 27.10.2026.
3.2 The Council further recommended to regularize the payment of GST
on import of services by an Indian establishment of a foreign shipping company
from a related person or any of its establishment outside India, when made
without consideration, for the past period on 'as is where is' basis.
3.3 Therefore, on recommendations of the GST
Council, the payment of GST on import of services by an Indian establishment of
a foreign shipping company from a related person or any of its establishment
outside India, when made without consideration, is hereby regularized for the
period from 01.07.2017 to 31.10.2026 on 'as is where is' basis.
4.1. Representations have
been received seeking clarification regarding the GST treatment of statutory
and ancillary expenses recovered separately in addition to the lease rent by the lessor from the lessee in
connection with leasing of motor vehicles. These expenses include
registration charges (including road tax), insurance premium, FASTag charges and other incidental expenses relating to
the leased vehicle.
4.2 In a motor
vehicle leasing arrangement, the lessor purchases the vehicle in its own name
and remains its legal owner during the lease period. The lessor undertakes
registration, insurance and other statutory compliances relating to the vehicle
and recovers such expenses from the lessee.
4.3. The matter has been examined. The
above-mentioned expenses are incurred by the lessor for the vehicle owned by it
and are incidental to the service of leasing the vehicle to the lessee, such
expenses are closely connected to the leasing service.
4.4. It is hereby clarified that recovery of such
statutory and ancillary expenses form part of the value of the composite supply
of the leasing service and shall be taxed at the rate applicable to the leasing
service of motor vehicle.
5.1. Representation has been received from Telecom
Regulatory Authority of India (TRAI) seeking clarification whether TRAI is
covered within the meaning of "Government" under GST law on the
grounds that TRAI is a statutory authority established under the Telecom
Regulatory Authority of India Act, 1997 to perform ce1iain statutory regulatory
functions and is substantially funded through Government grants.
5.2. The matter has been examined. "Government"
has
been defined under section 2(53) of the CGST Act to mean the Central
Government. It has also been clarified at Point No. 6 of CBIC's Sectoral FAQs
on Government Services that a statutory body, corporation or authority created
by the Parliament or a State Legislature is a juridical entity distinct from
the Government and cannot be regarded as Government. The FAQs fu1iher clarify
that regulatory bodies and other autonomous entities do not fall within the
definition of "Government".
5.3. Thus, it is hereby clarified that TRAI, a
statutory regulatory authority, is not "Government" within the
meaning of section 2(53) of the CGST Act.
6.1. Representation has been received seeking
clarification regarding applicability of GST on the notional interest recorded
in the Books of Accounts by the banks under the Fund Transfer Pricing (FTP)
mechanism, wherein funds are notionally transferred between different branches
of a
bank through its Head Office. FTP is an internal funds allocation and
performance measurement mechanism used by banks for evaluating the performance
of different branches or business units.
6.2. It has been observed that in certain
cases, demands have been raised on such notional amount/interest on the ground
that FTP represents a financial service provided by the Head Office to its
branches since the Head Office and its branches are distinct persons under
section 25(4) of the CGST Act.
6.3. The matter has been examined. Under the FTP
mechanism, the Head Office notionally pools funds from deposit-mobilising branches and allocates such funds to lending
branches at an internally determined price linked to the relevant product or
tenure. Such notional amount represents the cost of funds and is akin to
interest. Further, the definition of "interest" in Notification No.
12/2017-Central Tax (Rate) covers interest payable in any manner in respect of
moneys borrowed or debt incurred.
6.4. Therefore, on recommendations of the 57th
meeting of GST Council, it is hereby clarified that the notional
amount/interest recorded in the Books of Accounts against the activity of
making a loan or an advance under the Fund Transfer Pricing mechanism is
covered by the definition of "interest" for the purpose of exemption
under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
7.1. Representations have been received seeking
clarification regarding the taxability of services provided by Non-Banking
Financial Companies (NBFCs) to banks under co-lending arrangements.
7.2. The issue is examined and it is noticed that
RBI has issued directions, viz., RBI (Commercial Banks - Transfer and
Distribution of Credit Risk) Directions, 2025 (The Directions) which recognizes
services provided by NBFCs to bank in co-lending arrangements. Under the co lending model, banks and NBFCs jointly extend credit to
borrowers in a pre-agreed proportion, with the objective of combining the lower
cost of funds of banks with the wider reach of NBFCs. The borrower is generally
charged a blended rate of interest based on the respective lending rates of the
participating regulated entities. As per the Directions, NBFC provides 'lending services' to
bank in a co-lending arrangement.
7.3. These services primarily involve undertaking
activities such as customer sourcing, KYC, credit appraisal, underwriting,
servicing, monitoring, collection of repayments and recovery. Since NBFC acts
as primary interface with the borrower hence NBFCs are in the best position to
provide such services. The Reserve Bank of India, in the Directions, also
stated that the regulated entities in such co-lending arrangements shall decide
the objective criteria for determining the fees or charges payable for such services.
7.4. Therefore, on recommendations of the 57th
meeting of GST Council, it is hereby clarified that lending services, as
mentioned above, provided by an NBFC to a bank under a co-lending arrangement
are taxable under GST and the value of such services shall be the value
specified in the contractual agreement entered into between the NBFC and the
bank.
8. Field formations under your charge may be instructed
accordingly.
F. No.
CBIC-190354/142/2026-TRU Section-CBIC