Interest on PPF, Savings, Loans to be included for calculating GST registration threshold: AAR

The value of exempted income, like interest on PPF, savings bank account and loans given to family/friends, will be included along with taxable supplies while calculating the threshold limit for obtaining GST registration

Introduction

GST is a tax leviable on the event of “supply”.According to Section 7 of the CGST Act, 2017 the expression “supply” includes

1. 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
2. import of services for a consideration whether or not in the course or furtherance of business
3. activities specified in Schedule I, made or agreed to be made without a consideration
4. Activities to be treated as supply of goods or supply of services as referred to in Schedule II.

Under GST law, every supplier is required to get registered. However, the below mentioned small businesses have been provided relief of mandatory registration under GST law:-

In case of exclusive supply of goods, businesses having all India aggregate turnover below:-

1. Rs 40 lakhs (for other than notified special category states)
2. Rs 20 lakh (for Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura and Uttarakhand)

In case of supply of services or in case of mixed supplies

1. Rs 20 lakhs (for other than notified special category states)
2. Rs 10 lakh (for Manipur, Mizoram, Nagaland and Tripura)

The GST Council in its 32nd meeting gave an option to the hilly and north eastern states to choose either Rs. 20 lakhs or Rs. 40 lakhs as the turnover limit for GST exemption in case of supplier of goods.

What do you mean by aggregate turnover?

From reading the registration criteria, it is clear that computing nationwide aggregate turnover is essential in order to determine whether a person is required to get mandatory registration under GST.

Section 2(6) of the Central Goods & Services Tax Act, 2017 defines the term “aggregate turnover”.

‘Aggregate turnover’ means the aggregate value of all:-

1. taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis)
2. exempt supplies
3. exports of goods, services or both
4. inter-state supplies of persons having the same Permanent Account Number

Aggregate turnover is to be computed on an all-India basis. It excludes Central tax, State tax, Union territory tax, Integrated tax and cess.

Is exempted income, like interest on PPF, savings bank account and loans given to family/friends, to be included in aggregate turnover while calculating the threshold limit for obtaining GST registration?

The Gujarat Authority for Advance Ruling (AAR) recently passed a ruling for Shree Sawai Manoharlal Rathi on a similar situation, where the applicant had not engaged in any business and his only income was exempt under GST.

Facts of the Case

1. The applicant is an individual having not engaged in any business.
2. His receipts are only from savings, personal loans and advances and deposits, which are reflected in the Income Tax Returns.
3. The applicant submitted that his estimated receipts for the F.Y. 2018-19 is likely to be totally Rs.20,12,000, which includes:

i. Rent receipts = Rs.9,84,000

ii. Bank interest = Rs.3,000

iii. Interest on PPF deposit = Rs.2,76,000

iv. Interest on Personal Loans and Advances = Rs.7,49,000

Issue Raised:

In this case, the point is to be decided as to whether interest received on deposit in Public Provident Fund (PPF), Personal Loans & Advances to family/friends and deposit in Saving Bank Accounts, would be considered for the purpose of calculating the threshold limit of Rs. 20 Lakh for registration under GST Law?

AAR Proceedings

1.“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): Rs.20 Lakh (Rs.10 Lakh in case of supplies effected from special category states).

2. We find that the “aggregate turnover” is an all-encompassing term covering all the supplies effected by a person having the same PAN.

3. “Exempt supply” is defined under Section 2(47) of the CGST Act, 2017 as 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 IGST Act, and includes Non- Taxable supply.

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

5. Thus, the different kinds of supplies covered under the “aggregate turnover” are:

i. Taxable Supplies;

ii. Supplies that have a NIL rate of tax

iii. Supplies that are wholly exempted from SGST, UTGST, IGST or Cess

iv. Supplies that are not taxable under the Act

v. Export of goods or services or both, including zero-rated supplies.

6. We further find that under GST, Supply is considered a taxable event for charging tax. 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.

7. 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:

i. Supply is done for a consideration

ii. Supply is done in course of furtherance of business.

8. Notification No. 12/2017-Central Tax (Rate) and Notification No.9/2017-Integrated Tax (Rate), provides a list of services exempted from payment of Central Tax on intra-State supply and Integrated Tax on Inter-State supply.

9. Entry 27(a) of Notification No. 12/2017 and Entry 28(a) of the Notification No. 9/2017 relates to services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest.

10. The services regarding interest income are covered under the above Notification. 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. Therefore, in given case GST is not leviable on Interest Income earned by the Applicant.

11. From the above, it is revealed that the applicant is an individual with an annual turnover of more than Rs 20 Lakh.

12. Since this income is interest-related, the turnover is exempt from GST.

13. However, the Applicant also supplies services of “Renting of immovable property” along with activity of providing services by way of extending deposits, loans or advances where the consideration is represented by way of interest.

14. His turnover from the rent income is Rs.9.84 Lakh and this transaction (Renting of immovable property) is chargeable to GST. However, his taxable turnover is only Rs.9.84 Lakh. Going by the definition of “aggregate turnover”, the Applicant is required to consider the value of both the taxable supply i.e. “Renting of immovable property” and exempted supply of service provided by way of extending deposits, loans or advances for which they earned interest income, to arrive at “Aggregate Turnover” to determine the threshold limit for the purpose of obtaining registration under the GST Act.

The AAR thus concluded that, the Applicant 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 given to his family/friends 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 Lakh for obtaining registration under GST law.

Ruling may lead to homemakers, retired persons and freelancers may have to taking GST registration

Let us refer to the example given below to understand this better:-

Supplier	State	Nature of Taxable Supply	Taxable Supplies	Exempt Income (interest , etc)	Limit	Is registration mandatory
A	Maharashtra	Exclusive supply of goods	35 lakhs	6 lakh	40 lakhs	Yes
B	Arunachal Pradesh	Exclusive supply of goods	15 lakhs	8 lakhs	20 lakhs	Yes
C	Tripura	Supply of services	Nil	11 lakhs	10 lakhs	Yes
D	Gujarat	Exclusive supply of goods	20 lakhs	1 lakh	40 lakhs	No
E	Manipur	Supply of services	5 lakh	3 lakhs	10 lakhs	No
F	Karnataka	Mixed Supply	15 lakhs	7 lakhs	20 lakhs	Yes

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