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Reverse charge does not apply to every service an NBFC buys. It applies when the service and parties match a category notified by the government. One express example is recovery-agent services supplied to a banking company, financial institution or NBFC, where the recipient is located in the taxable territory. DSA arrangements need a separate check against the operative notification wording for the relevant tax period.
How the reverse-charge rule works
Section 9(3) of the Central Goods and Services Tax Act, 2017 lets the Government notify categories of supplies for which the recipient, rather than the supplier, pays tax under reverse charge. The Act says: “The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both.” Read section 9 of the CGST Act.
That makes the notified category—not the fact that the buyer is an NBFC—the starting point. Each purchase needs to be assessed against the service description, supplier, recipient and applicable tax-period rules.
Recovery-agent services supplied to an NBFC
Entry 8 of Notification No. 13/2017-Central Tax (Rate), dated 28 June 2017, names “Services supplied by a recovery agent to a banking company or a financial institution or a non-banking financial company.” For this notified supply, the recipient located in the taxable territory is liable to pay central tax under reverse charge. The notification took effect on 1 July 2017; that commencement date alone does not establish whether later amendments affect a particular period. Read Notification No. 13/2017-Central Tax (Rate).
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For a particular vendor arrangement, check the service actually performed and whether the supplier fits the notification’s description of a recovery agent. An invoice label by itself does not settle the classification.
How to assess DSA services
CBIC’s central tax-rate index lists Notification No. 15/2018-Central Tax (Rate), dated 26 July 2018, as an amendment concerning services supplied by individual Direct Selling Agents (DSAs) to banks and NBFCs. Check CBIC’s central tax-rate index.
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The index confirms the amendment’s subject, but not its full conditions or the treatment of a specific contract. Do not assume every DSA arrangement is covered. Check the amendment’s operative text, the contract and the tax period before deciding whether reverse charge applies.
Other NBFC purchases and unregistered suppliers
A service bought by an NBFC is not subject to reverse charge simply because the recipient is an NBFC. For other services, identify whether a notification applicable to the relevant period names that supply and assigns tax to the recipient.
Section 9(4) is a separate mechanism concerning notified taxable supplies from unregistered suppliers to registered recipients. It does not make every purchase from an unregistered vendor automatically subject to reverse charge. Check the applicable notification and period rather than treating supplier registration status alone as decisive. See sections 9(3) and 9(4) of the CGST Act.
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- Describe the actual service. Use the contract and scope of work, not just the vendor’s invoice label.
- Identify the supplier category. Check whether the supplier meets a description in a notified category, such as recovery agent, or whether the DSA amendment may be relevant.
- Identify the recipient and location. Confirm which NBFC entity or registration receives the service and whether the notification’s recipient-location condition is met.
- Use the notification for the transaction period. Check amendments and the applicable CGST, IGST or SGST provisions; the original notification date is not proof that its wording is unchanged.
- Determine the tax and documentation treatment. Record the provision applied and verify current invoice, reporting and payment requirements for that transaction.
Keep the contract or scope, supplier details, recipient registration and location, invoice or other document required by current rules, and the notification provision supporting the treatment together in the transaction file. CBIC’s sectoral FAQ discusses consolidated monthly invoices or statements for banks and NBFCs and documentation in reverse-charge contexts. Because FAQ material may describe implementation-era processes, check current rules and forms before relying on it for filing mechanics.
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