Circular No. 266/12/2026-GST: R&D, Vehicle Leasing, TRAI, Bank FTP and NBFC Co-Lending

The CBIC (Tax Research Unit) has issued Circular No. 266/12/2026-GST dated 28.10.2026 under Section 168(1) of the CGST Act. Based on the recommendations of the 57th GST Council meeting (8 October 2026), it clarifies GST on six services. Three of them matter most to banks and NBFCs.

At a Glance

1. R&D or Consultancy? Self-Certificate for Entry 44A

On the 54th Council’s recommendation, Entry 44A of Notification No. 12/2017-Central Tax (Rate) exempts, from 10.10.2024, research and development services supplied against grants by Government entities, research associations, universities, colleges and other institutions notified under Section 35(1)(ii) or (iii) of the Income-tax Act, 1961.

The terms “research”, “R&D” and “consultancy” are not defined in GST law, and the two often overlap. The circular clarifies that, for claiming Entry 44A, a certificate from the head of the institution, stating that the activity is R&D and not consultancy, may suffice.

For institutions: issue the certificate project-wise and keep it with the grant letter. The exemption covers only R&D funded by grants. Paid consultancy remains taxable.

2. Foreign Shipping Companies — Services from Related Entities Abroad

The Indian establishment of a foreign shipping company often receives services from its overseas head office or group entities without any consideration. Such import of services is now exempt from 01.11.2026 by Notification No. 07/2026-Integrated Tax (Rate) dated 27.10.2026.

For the period 01.07.2017 to 31.10.2026, GST on such services is regularised on an “as is where is” basis. In simple terms, past tax positions on this issue are generally accepted as they stand, without fresh demands or refunds.

3. Vehicle Leasing — Road Tax, Insurance and FASTag Are Part of Lease Value

In a motor vehicle lease, the lessor buys the vehicle in its own name and stays the legal owner. It pays for registration (including road tax), insurance, FASTag and other incidental expenses, and recovers them from the lessee separately from the lease rent.

The circular clarifies that these expenses are incurred by the lessor for its own vehicle and are closely connected to the leasing service. So their recovery forms part of the value of the composite supply of leasing and is taxed at the rate applicable to leasing of the motor vehicle. In other words, they should not be billed as reimbursements outside the taxable value.

For lessors: include these recoveries in the taxable value on the lease invoice. Where they were billed without GST in the past, review the exposure.

4. TRAI Is Not “Government”

TRAI argued that it is a statutory authority set up under the TRAI Act, 1997, largely funded by Government grants. The circular notes that “Government” under Section 2(53) of the CGST Act means the Central Government, and CBIC’s sectoral FAQs on Government services (Point 6) say that statutory bodies, corporations, regulatory bodies and autonomous entities are separate juridical entities, not Government. It clarifies that TRAI is not “Government” under Section 2(53). Entries in GST notifications meant only for “Government” therefore cannot be applied to TRAI.

5. Banks — Fund Transfer Pricing (FTP) Is Exempt as “Interest”

Under FTP, a bank’s head office notionally pools funds from deposit-raising branches and allocates them to lending branches at an internal price. This is an internal tool to measure branch performance. Since the head office and branches in different States are distinct persons under Section 25(4), some officers raised demands treating FTP as a financial service by the head office to its branches.

The circular clarifies that the notional amount is the cost of funds and is akin to interest. The definition of “interest” in Notification No. 12/2017-CTR covers interest payable in any manner on money borrowed or debt incurred. So the notional amount or interest recorded under FTP for making a loan or advance is covered by “interest” and is exempt under Notification No. 12/2017-CTR dated 28.06.2017.

For banks with FTP demands: cite this circular in pending notices and appeals.

6. NBFC Services to Banks in Co-Lending Are Taxable

In co-lending, banks and NBFCs lend jointly to borrowers in a pre-agreed ratio, combining the bank’s lower cost of funds with the NBFC’s reach. Under the RBI (Commercial Banks – Transfer and Distribution of Credit Risk) Directions, 2025, the NBFC provides “lending services” to the bank, such as:

• customer sourcing and KYC;
• credit appraisal and underwriting;
• servicing and monitoring;
• collection of repayments and recovery.

The circular clarifies that these lending services by an NBFC to a bank are taxable, and the value is the value specified in the contract between the NBFC and the bank. The interest earned by each lender from the borrower is a separate matter.

For NBFCs: make sure the co-lending agreement states the fee or charge for these services, and charge GST on it.

Who Should Act

• Universities and research institutions: keep head-of-institution certificates for each grant-funded R&D project.
• Foreign shipping companies in India: stop RCM on free inter-company services from 01.11.2026. Past period stays as is.
• Vehicle leasing companies: include road tax, insurance and FASTag recoveries in the taxable value.
• Banks: no GST on FTP notional interest. Use this circular against pending demands.
• NBFCs in co-lending: charge GST on the service fee agreed with the bank.

Related

• GST Notice Reply Draft Generator
• GST Calculator

Reference: Circular No. 266/12/2026-GST dated 28.10.2026 (TRU); Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (including Entry 44A); Notification No. 07/2026-Integrated Tax (Rate) dated 27.10.2026; Sections 2(53) and 25(4), CGST Act, 2017; 57th GST Council meeting, 08.10.2026. This page is for general information only.