What SEBI said about GST on services to FPI?

The securities and commodities market regulator of the country, the Securities and Exchange Board of India (SEBI) has now clarified the provision of GST on services provided to Foreign Portfolio Investors ( FPIs).

In a big move, SEBI informed all stakeholders that from July 18th 2022 onwards, all services received by FPIs and fees related to those services would be taxable under Goods And Service Tax.

Earlier, services given to FPIs and the respective fees were exempted from GST to encourage participation in investment activities in India.

A month ago in June, GST Council, a body which decides upon all matters regarding GST, laid out a proposal in which all kinds of services provided by the SEBI would be taxable under GST. The council decided to withdraw all exemptions regarding SEBI services and related fees.

Soon after the decision of the GST Council made news headlines, Foreign Portfolio Investors started to send requests to SEBI asking for exemption from paying GST on services received from the market regulator. To support their argument, FPIs stated that they were situated outside India and that GST was to be charged for the transfer of goods and services within India.

FPIs wanted services received by them from SEBI to be listed under ‘export of services which is currently a zero-rated supply and not taxable under GST.

With the most recent clarification from SEBI, it is daylight clear that SEBI has turned down requests of FPIs for exemption on GST payment.

This would mean that all kinds of registration and renewal services provided by SEBI and fees such as annual fees and registration fees received by it from FPI would be taxable under GST.

Registration fees for Category 1 FPIs are 3000 dollars in India while Category 2 FPIs have to pay somewhere near 300 dollars to get registration.

Even though market participants had concerns regarding the possibilities of any SEBI order having a retrospective effect, the recent clarification solves those concerns also.

Only services provided by SEBI after July 18th 2022, and the fees received by the market regulator after the date mentioned above, would be taxable under GST. GST is expected to be charged on each transaction and service at a rate of 18%.

Currently, there are more than 10800 FPIs registered under the securities and exchange board of India. Out of this large number of FPIs are from the United States of America and Luxembourg.

Services received by Custodians from SEBI would also be taxed from July 18th 2022. Custodians are financial institutions which keep the assets with them on behalf of Foreign Portfolio Investors. The majority of FPIs who are investing in India, keep their assets with a custodian such as banks.