Circular No.: 220/14/2024-GST
Date of Circular: 26th June 2024
Relevant Sections and Rules:
- IGST Act, 2017:
- Section 13(2): General rule for determining place of supply
- Section 13(8)(a): Place of supply for banking services to account holders
- Explanation (a) to Section 13(8): Definition of “account”
- CGST Act, 2017: Section 168(1): Power to issue instructions
- SEBI Regulations & Service Tax Education Guide referenced for contextual interpretation
Clarification on Place of Supply for Custodial Services Provided by Banks to Foreign Portfolio Investors (FPIs):
- Issue:
Banks and financial institutions provide custodial services to Foreign Portfolio Investors (FPIs), and confusion existed whether such services fall under Section 13(8)(a) of IGST Act (place of supply = location of service provider) or not. - Definition and Nature of Custodial Services:
Under SEBI regulations, custodial services include:
- Safekeeping of securities
- Maintaining accounts of client securities
- Collecting benefits or rights
- Issuer action notifications
- Reconciliation and reporting
These services are offered under a custodial agreement and are not linked to interest-bearing deposit accounts.
- Interpretation of ‘Account Holder’ under Section 13(8)(a):
- Explanation (a) to Section 13(8) defines “account” as interest-bearing accounts, including NRE/NRO accounts.
- Education Guide under Service Tax Law (similar in wording to IGST Act) clarified that custodial and portfolio management services are not services to “account holders”.
- Clarification Provided:
- Custodial services are not services to account holders.
- Hence, Section 13(8)(a) does not apply.
- Instead, Section 13(2) applies, i.e., place of supply is the location of the recipient (FPI), which is outside India.
➤ Result: Custodial services to FPIs qualify as exports, provided other export conditions are met.
Source: Circular No.: 220/14/2024-GST
