When you borrow stocks through the Securities Lending and Borrowing (SLB) segment, you must pay 18% Goods and Services Tax (GST) on the lending fee. Under the Reverse Charge Mechanism (RCM), this payment liability falls entirely on the borrower, not the lender. Lenders have no GST payment liability on SLB transactions.
Buying and selling stocks is exempt from GST because securities are not goods or services. However, temporarily lending stocks under SLB is a taxable service under Service Accounting Code (SAC) 997119 because ownership is not permanently transferred.
Example scenario
| Particulars | Amount |
| Stocks borrowed | 100 (in quantity) |
| Lending fee per stock | ₹1 |
| Total lending fee paid to lender | ₹100 |
| GST under RCM at 18% (payable by borrower) | ₹18 |
| Total cost of borrowing | ₹118 |
Steps for borrowers to comply with GST
If you borrow stocks in the SLB segment, you must complete the following steps to comply with GST regulations:
- Register under GST: You must register compulsorily under Section 24 of the Central Goods and Services Tax (CGST) Act if you are liable to pay tax under RCM, regardless of your annual business turnover.
- Issue a self-invoice: You must issue a self-invoice for each SLB borrow transaction under Section 31(3)(f) of the CGST Act because the lender remains anonymous on the exchange platform.
- Pay the tax in cash: You must pay the 18% GST in cash through your electronic cash ledger by the 20th of the following month when filing your GSTR-3B return. You cannot use Input Tax Credit (ITC) to set off your RCM liability.
- Claim Input Tax Credit (ITC): You can claim ITC for the GST paid under RCM, subject to the conditions of Section 16 of the CGST Act. Consult your tax advisor to confirm whether your business profile allows you to utilise this credit.
- Maintain transaction records: You must retain your SLB contract notes and exchange lending-fee statements as primary proof of your tax liability and audit records.
Things to keep in mind
-
Zerodha and stock exchanges do not collect or remit GST on SLB lending fees. Borrowers must deposit the tax directly with the government.
- Lenders do not pay GST on SLB fees, but they must report the lending fee as part of their aggregate annual turnover in their GST returns.
- If you trade as an individual without a business GST registration, consult your tax advisor regarding mandatory registration requirements under Section 24 of the CGST Act when borrowing stocks in the SLB segment.