RCM Entry 16: Lending of Securities, Where Securities Themselves Are Not Goods

RCM Entry 16 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

This entry rests on a distinction that sounds academic and is not: dealing in securities is outside GST, but lending them is inside it. The transaction that transfers the security is not a supply; the service of making it available is.

Entry 16 of Notification No. 13/2017-CT(Rate), inserted by Notification No. 22/2019-CT(Rate) dated 30.09.2019, covers "services of lending of securities under Securities Lending Scheme, 1997 of SEBI, as amended". The supplier is the lender, the recipient the borrower, and both are defined by reference to the SEBI scheme. Circular No. 119/38/2019-GST dated 11.10.2019 explains why the levy stands: securities are excluded from both "goods" and "services" in sections 2(52) and 2(102), so a transaction in securities is not a supply — but the lending service is classifiable under heading 997119 and is leviable at 18%. From 01.10.2019 the borrower discharges it under reverse charge, and the tax is IGST.

The definitional starting point

Section 2(52) defines goods to mean every kind of movable property other than money and securities. Section 2(102) defines services to mean anything other than goods, money and securities.

Securities, as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956, are therefore in neither box. The circular draws the conclusion: "a transaction in securities which involves disposal of securities is not a supply in GST and hence not taxable."

Lending is a different transaction. The lender does not dispose of the securities; the lender deposits them with an approved intermediary so that a borrower may use them and return equivalent securities. What is supplied is the making-available — a service — and that is what heading 997119 captures.

Who the three parties are

The circular defines each by reference to the scheme, and the entry's supplier and recipient columns reproduce them:

• Lender — a person who deposits the securities registered in his name, or in the name of any other person duly authorised on his behalf, with an approved intermediary for the purpose of lending under the scheme.
• Borrower — a person who borrows the securities under the scheme through an approved intermediary.
• Approved intermediary — a person duly registered by SEBI under the guidelines or scheme, through whom the lender deposits the securities for lending and the borrower borrows them.

The intermediary is not the taxable party under Entry 16. It sits in the middle of the mechanism, but the entry taxes the lending service supplied by the lender in the hands of the borrower. The intermediary's own charges are a separate supply on their own terms.

Classification, rate, and the timeline

The circular fixes the classification and rate: lending of securities under the scheme is classifiable under heading 997119 and leviable at 18% under Sl. No. 15(vii) of Notification No. 11/2017-CT(Rate) as amended.

The change of mechanism on 1 October 2019 is what the entry is for. The Handbook tabulates the position:

A transitional relief is recorded for the earlier period. Where a service provider had already paid CGST/SGST/UTGST, treating the supply as an intra-State supply, "such lenders shall not be required to pay IGST again in lieu of such GST payments already made." That is a practical settlement of an honest classification difference, and it closed the exposure of lenders who had taken the intra-State view before the circular.

Why the tax is IGST, and why that is unusual

Entry 16 is the only entry in the reverse charge notification about which the Handbook says, in terms, "The nature of GST to be paid shall be IGST under RCM."

That flows from the mechanism, not from the parties' locations. Under the SEBI scheme the lender deposits securities with the approved intermediary, and the borrower draws from that pool; the lender and the borrower are not in direct privity and their respective States do not define the transaction the way a bilateral supply would. Treating the supply as inter-State, and the tax as IGST, is the settled position under Circular No. 119/38/2019-GST.

For a borrower's compliance this has a practical consequence. The liability is reported and discharged as integrated tax, and the corresponding credit — if otherwise eligible — is IGST credit. A borrower defaulting to CGST/SGST because the counterparty appears to be in the same State is misreporting the head.

What Entry 16 does not cover

Outright sale or purchase of securities — not a supply at all, by force of sections 2(52) and 2(102).

Brokerage, custody, depository and clearing services — these are ordinary services supplied by intermediaries under forward charge, not the lending service that Entry 16 taxes.

Lending outside the SEBI Securities Lending Scheme, 1997 — the entry is expressly anchored to that scheme "as amended". An arrangement structured outside the scheme has to be classified on its own facts and does not automatically attract Entry 16.

The compliance chain

• The borrower is the person liable. Where the lender is unregistered, section 31(3)(f) requires the borrower to issue a self-invoice, and section 31(3)(g) a payment voucher on payment.
• Time of supply under section 13(3) — the earliest of the date of payment entered in the books or debited to the bank account, the day after sixty days from the lender's invoice where the lender is required to issue one, or the date of the borrower's own invoice where the borrower is the one to issue it.
• Payment in cash under rule 85(4) — the credit ledger cannot be used for reverse charge liability.
• Reported in Table 3.1(d) of GSTR-3B as integrated tax, with the credit in Table 4(A)(3); annually in Table 4G of GSTR-9, with the credit in Table 6C or 6D.

Key takeaways

• Securities are neither goods nor services — sections 2(52) and 2(102) — so trading them is not a supply.
• Lending them under the SEBI Securities Lending Scheme, 1997 is a service, classifiable under heading 997119 at 18%.
• From 01.10.2019 the borrower pays under reverse charge, by Entry 16 inserted by Notification No. 22/2019-CT(Rate).
• The tax is IGST — the only entry in the notification where the circular fixes the head expressly.
• Lenders who had paid CGST/SGST for the pre-October-2019 period were not required to pay IGST again.
• The approved intermediary is part of the mechanism but is not the party liable under Entry 16.

Read next

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• RCM IGST Entry 1: Import of Services, and the Ocean Freight Omission
• ITC on Reverse Charge Tax: Conditions, Timing and the ISD Route

Disclaimer: Positions stated as on 5 September 2026, based on entry 16 of Notification No. 13/2017-Central Tax (Rate) as inserted by Notification No. 22/2019-Central Tax (Rate) dated 30 September 2019, sections 2(52) and 2(102) of the CGST Act, 2017, section 2(h) of the Securities Contracts (Regulation) Act, 1956, Sl. No. 15(vii) of Notification No. 11/2017-Central Tax (Rate) and Circular No. 119/38/2019-GST dated 11 October 2019, as reproduced in the ICAI Handbook on Reverse Charge under GST (2nd edition, February 2025).