GST Circular No 266/12/2026
The CBIC, based on the recommendations of the 57th GST Council Meeting held on 8 October 2026, has issued the following clarifications under Section 168(1) of the CGST Act, 2017 to ensure uniformity in the interpretation and applicability of GST on certain services.
Distinction Between Research & Development (R&D) and Consultancy Services
The CBIC has clarified the applicability of GST exemption on Research and Development (R&D) services provided by Government Entities, research associations, universities, colleges and other institutions notified under Section 35(1)(ii) or (iii) of the Income-tax Act, 1961, against consideration received in the form of grants.
Such services have been exempt from GST since 10 October 2024 under Entry No. 44A of Notification No. 12/2017-Central Tax (Rate).Since the terms research, research and development and consultancy are not specifically defined under GST law or the explanatory notes to the classification of services, there may be confusion between R&D and consultancy services due to their scientific and technical nature.
Accordingly, the CBIC has clarified that a self-certification issued by the head of the concerned eligible institution, confirming that the activity undertaken is R&D and not consultancy, may be sufficient for claiming the GST exemption under Entry No. 44A.
GST on Import of Services by Indian Establishments of Foreign Shipping Companies
The CBIC has clarified that import of services by an Indian establishment of a foreign shipping company from a related person or any of its establishments located outside India, without consideration, has been exempted from GST with effect from 1 November 2026 under Notification No. 07/2026-Integrated Tax (Rate), dated 27 October 2026.
Further, for the past period from 1 July 2017 to 31 October 2026, the GST Council has recommended regularisation of GST payments on such transactions on an “as is where is” basis.
GST on Statutory and Incidental Charges Recovered in Motor Vehicle Leasing
The CBIC has clarified the GST treatment of statutory and incidental expenses recovered separately by a lessor from a lessee in addition to the lease rent under motor vehicle leasing arrangements.These expenses include vehicle registration charges (including road tax), insurance premiums, FASTag charges and other incidental expenses relating to the leased vehicle.
In such arrangements, the lessor purchases and owns the vehicle during the lease period and undertakes registration, insurance and other statutory compliances. Since these expenses are incurred for the lessor-owned vehicle and are directly connected with the leasing service, their recovery forms part of the value of the composite supply of motor vehicle leasing services.
Accordingly, GST will be applicable on such recovered amounts at the same rate applicable to the motor vehicle leasing service, even where such expenses are recovered separately from the lessee.
Clarification on Whether TRAI Qualifies as Government under GST
The CBIC has clarified that the Telecom Regulatory Authority of India (TRAI), established under the Telecom Regulatory Authority of India Act, 1997, is not considered Government under Section 2(53) of the CGST Act, 2017.Although TRAI is a statutory authority performing regulatory functions and is substantially funded through Government grants, it is a separate legal entity from the Central Government.
The clarification also refers to CBIC’s Sectoral FAQs on Government Services, which state that statutory bodies, corporations, regulatory authorities and other autonomous entities established by Parliament or State Legislatures cannot automatically be treated as Government.Accordingly, TRAI will not be treated as Government for the purposes of GST provisions.
GST on Fund Transfer Pricing (FTP) Mechanism in Banks
The CBIC has clarified the applicability of GST on notional interest recorded in the books of banks under the Fund Transfer Pricing (FTP) mechanism.
Under this mechanism, a bank’s Head Office notionally pools funds from deposit-mobilising branches and allocates them to lending branches at an internally determined price linked to the relevant product or tenure. This mechanism is used for internal fund allocation and measuring the performance of different branches or business units.
Certain GST demands were raised on such notional amounts on the grounds that the Head Office and branches are distinct persons under Section 25(4) of the CGST Act and that FTP represents financial services provided by the Head Office to its branches.
The CBIC has clarified that notional interest recorded in the books of accounts for making loans or advances under the FTP mechanism is covered by the definition of interest under Notification No. 12/2017-Central Tax (Rate), dated 28 June 2017.Accordingly, such notional interest will be covered under the GST exemption applicable to interest on loans and advances.
GST on Services Provided by NBFCs to Banks under Co-Lending Arrangements
The CBIC has clarified the GST treatment of services provided by Non-Banking Financial Companies (NBFCs) to banks under co-lending arrangements.Under the RBI (Commercial Banks – Transfer and Distribution of Credit Risk) Directions, 2025, banks and NBFCs jointly provide loans to borrowers in a pre-agreed proportion, combining the lower cost of funds available to banks with the wider customer reach of NBFCs. Borrowers are generally charged a blended rate of interest based on the respective lending rates of the participating institutions.
Under such arrangements, NBFCs provide lending-related services to banks, including customer sourcing, Know Your Customer (KYC) verification, credit appraisal, underwriting, loan servicing, monitoring, collection of repayments and recovery services.The RBI Directions provide that the participating regulated entities shall determine the objective criteria for fees or charges payable for such services.
Accordingly, the CBIC has clarified that lending services provided by NBFCs to banks under co-lending arrangements are taxable under GST, and the taxable value of such services shall be the amount specified in the contractual agreement between the NBFC and the bank.
