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September 23, 2020

Having interest income of Rs 20 Lakh? You are liable to take GST Number in case your business receipt is Rs 1

by Rubina Dsouza in GST, GST Circular Notification

Having interest income of Rs 20 Lakh? You are liable to take GST number in case your business or professional receipt is Rs 1

Introduction

We all are by now well versed with roughly what GST is and its threshold limits etc. Inspite of this there are many concepts where we feel the need of a better understanding keeping in mind the GST law and its provisions. One such aspect is the interest income. So is interest income to be considered for registration under GST? If Yes, than the question “Why to register” may run through your minds. As interest income does not match with the definition of Supply. It is not in course or furtherance of business.

Do we still have to register under GST if we cross the threshold limit under aggregate turnover? In this article we will answer all your question about interest income and its implications in GST.

What do you mean by Aggregate Turnover?

In accordance to Section 2(6) of the Central Goods & Services Tax Act, 2017 defines the term “aggregate turnover” as under:

“aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.”

Explanation: “Aggregate Turnover” is relevant to a person to determine the threshold limit to obtain registration under the Act (supply of Services or (goods and services both): The earlier aggregate turnover limit Up to 31st March 2019 was if sales exceeds  Rs.20 Lakh for Normal Category States  and Rs.10 Lakh in case of supplies effected from special category states a person was required to register under GST. This limit of aggregate turnover for sale of goods has now been changed and raised from 1st April 2019 onwards to Rs. 40  Lakhs For Normal Category States and  Rs. 20 lakh For Special Category States. However, there has been no change in Threshold limits for Service Providers.

An Option was provided to the states to opt for the new limits or continue the earlier ones (status quo)

List of States opting for New Threshold limits under GST:

Normal Category States/UT who opted for a new limit of Rs.40 lakh- Kerala, Chhattisgarh, Jharkhand, Delhi, Bihar, Maharashtra, Andhra Pradesh, Gujarat, Haryana, Goa, Punjab, Uttar Pradesh, Himachal Pradesh, Karnataka, Madhya Pradesh, Odisha, Rajasthan, Tamil Nadu, West Bengal, Lakshadweep, Dadra and Nagar Haveli and Daman and Diu, Andaman and Nicobar Islands and Chandigarh.

Normal Category States who choose status quo- Telangana

Special Category States/UT who opted for new limit of Rs.40 lakh- Jammu and Kashmir, Ladakh and Assam

Special Category States/UT who opted for new limit of Rs.20 lakh- Puducherry, Meghalaya, Mizoram, Tripura, Manipur, Sikkim, Nagaland, Arunachal Pradesh and Uttarakhand

What is Supply Under GST Law?

Supply is considered a taxable event for charging tax under the GST Law. The liability to pay tax arises at the ‘time of supply of goods or services’. Thus, determining whether or not a transaction falls under the meaning of supply, is important to decide GST’s applicability.

Section 7 of the Central GST Act, 2017 defines the term “Supply” as under

1.For the purposes of this Act, the expression “supply” includes –

a. all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

b. import of services for a consideration whether or not in the course or furtherance of business;

c. the activities specified in Schedule I, made or agreed to be made without a consideration; and

d. the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

2. Notwithstanding anything contained in sub-section (1),-

a. activities or transactions specified in Schedule III; or

b. such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.

3. Subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as-

a. a supply of goods and not as a supply of services; or

b. a supply of services and not as a supply of goods.

Explanation: Thus, the Supply includes sale, transfer, exchange, barter, license, rental, lease and disposal. If a person undertakes either of these transactions during the course or furtherance of business for consideration, it will be covered under the meaning of Supply under GST. Supply has two important elements:  a) Supply is done for a consideration; and b) Supply is done in course of furtherance of business.

Is Interest Income to be considered for registration under GST?

Interest Income has been specifically considered under exempt services under  Entry 27(a) of the Notification No. 12/2017and Entry 28(a) of the Notification No. 9/2017  which relates to services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest. Therefore, such services are exempted from payment of GST and the individual is not required to discharge GST on the activity of providing services by way of extending deposits, loans or advances where the consideration is represented by way of interest.

From the above Notification we know that interest income has been exempted from the purview of GST and therefore a person having only interest income by way of extending deposits, loans or advances or interest  income received  from PPF or saving bank account is not required to register under GST.

What is the difference between Exempt Supply and Nil Rated Supply?

Exempt supply” is defined under Section 2(47) of the CGST Act, 2017 (hereinafter referred as “The Act”) as reproduced below-

“Exempt Supply” means supply of any goods or services or both which attracts nil rated of tax or which may be wholly exempt under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes Non- Taxable supply.

“Nil rated supply” is nowhere defined in GST Law.

Explanation: The basic difference between nil rated and exempt supply is that the tariff is higher than 0% in case of exempt supply. But there is no tax payable due to exemption notification. Whereas in case of NIL rated supply, the tariff is at NIL rate so there is no tax without the exemption notification.

Is Interest Income to be consider for GST registration if one of the services provided is a taxable service?

Although as discussed above interest income is exempt under the GST law but where a service provider is providing any other service which is taxable under GST than for calculating the aggregate turn over the Income from interest shall be considered. Therefore, going by the definition of “aggregate turnover”, it is required to consider the value of both the taxable supply and exempted supply of service provided by way of extending deposits, loans or advances for which interest income is earned, to arrive at “Aggregate Turnover” to determine the threshold limit for the purpose of obtaining registration under the GST Act.

Illustration

Mr. A earns income from rent Rs. 10 lakhs but his interest income from PPF, interest from loans and advances and saving bank is Rs 12 lakhs. His total turnover is Rs 22 lakhs from which Rs 12 lakhs is under exempt supply of services. Is Mr. A to liable to register under GST Act?

Explanation: The threshold limit of aggregate  turnover for services is Rs 20 lakhs. Mr. A taxable income under GST  i.e., Income from rental services is Rs 10 lakhs only but his total turnover by adding exempt supply is a total of Rs 22 lakhs which exceeds the threshold limit of aggregate turnover. Therefore, Mr A has to register under GST.

Therefore we can conclude that, Mr. A is required to aggregate the value of exempted interest income earned by way of extending deposits in PPF & Bank Saving accounts and loans and advances along with the value of the taxable supply i.e. “Renting of immovable property” for the purpose of calculating the threshold limit of Rs.20 Lakhs for obtaining registration under GST law.

Conclusion:

From all the above discussion it is clear,

  1. Interest income is considered under exempt services since it does not come under the very definition of supply as it is not against any consideration nor in course or furtherance of business.
  2. It comes under the definition of Exempt supply as defined under Section 2(47) of the CGST Act, 2017 and hence if a person is only having interest income and no other business of goods or services which come under taxable goods or service than the Interest income is exempt under GST and is not required to be registered under GST.
  3. However, if along with the Interest income a person is involved in any other business of goods or services which are taxable under GST but if those taxable services although less than the threshold limit the exempt interest income will also be considered and added while determining the registration under GST Law.

Thus you are liable to take GST number in case your business or professional receipt is even Rs 1 and the interest income exceeds Rs 20 lakhs.

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