Question

The AAA finance company Limited is paying referral fees to any person who refers a prospective client and the deal is done and loan is disbursed. Whether any GST is required to be paid by the company under RCM? Whether any GST is required to be paid by the Person referring the prospective client, if he/she --is not registered under GST? --is already registered under GST for any business / services?

Answer

Facts of the case: The finance company pays referral fee to any person who brings new clients.

Law applicable: As per entry 11 of notif 13/2017 the following shall be covered by RCM:

"Services supplied by individual Direct Selling Agents (DSAs) other than a body corporate, partnership or limited liability partnership firm to bank or non-banking financial company (NBFCs)"

Interpretation:
Case 1: A customer of finance company refers his brother as a new client and gets referral fee.
This is customer is not a DSA of the company because he has not been explicitly hired through an agreement to act as a DSA for the company. Therefore this is not covered by RCM.

In fact this case is not taxable at all because this is not a taxable supply since the customer is not referring his brother in course or furtherance of business.
Therefore no GST is applicable in this case.
(A second school of thought would suggest that as per section 2(17)(c) the frequency of transaction is irrelevant and even a single transaction can be defined as "business". But this principal would be illogical to be applied in individual personal cases)

Case 2: A DSA of finance company refers a new client and gets a referral fee.
This case is covered by RCM. The finance company, that is the receiver of supply, shall pay the GST to government regardless of whether DSA is registered under GST or not. (Reply dt.09/03/2019)