Whether interest income From PPF, Bank saving or other interest & interest on personal Advances are included in aggregate turnover for determining the threshold for GST Registration??
Gujarat AAR Decision:
Shree Sawai Manoharlal Rathi (GST AAR Gujarat) -
In the case of Sawai Manoharlal Rathi, the Gujarat Authority for Advance Ruling has held that interest income from PPF, interest income from personal loan and advances given to family/friends and interest income from saving bank account to be included in aggregate turnover for GST registration
Issue is as under
Total Gross income 2012000
Rent from commercial property: 9.84 lacs
Balance interest from interest on PPF, Saving Bank interest, Fixed Deposit and persons advance to others. The applicant stated that the interest is earned out of his personal investment. It is not business income.
Person goes to AAR whether he is required to take registration as his income exceeds 20 lacs?
Whether interest from interest on PPF, Saving Bank interest, interest on Fixed Deposit and interest on advance to others included for calculating the threshold for registration?
The AAR said that the aggregate turnover will include the exempt supply. Therefore, the interest amount will be included for the purpose of calculating the threshold of registration under GST.
We do not agree with the decision of the AAR- Gujarat.
Our Analysis and personal opinion
Section 22 Registration required if aggregate turnover exceeds threshold limit
Threshold Limit – 40 lacs for Goods & 20 lacs for services
Explanation: A person shall be considered to be engaged exclusively in the supply of goods even if he is engaged in exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.
Example: If Sales of goods is 39 lacs and other interest income i.e. exempt under GST is 2 lacs, then such person is not required to take GST Registration as per explanation under Section 22.
The above explanation is only for the purpose of intra state supply of goods. It is not applicable for supply of services. Here the case under consideration is supply of services so, this explanation is not applicable.
Section 2(6) Aggregate turnover means
All taxable supplies + Exempt supplies + Export + interstate supplies of person having same PAN
The word is exempt supply here. Means you have to look definition of exempt supply as well as supply.
Section 2(47) Exempt Supply Means
- which attracts nil rate of tax
- which may be wholly exempt from tax under section 11 of CGST Act , or under section 6 of IGST Act, and includes
i.e. Exemption by notification 2/2017 for Goods & Notification 12/2017 for Services
3. Nontaxable Supply
Petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel, alcoholic liquor for human consumption
Interest income is exempt via entry 27(a) of Notification 12/2017
Entry no 27(a) of Notification 12/2017 – Exemption
Services by way of—
extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services);
Section 7 Supply
If you look at the definition of supply then
As per section 7(1)(a) It includes supply of goods or services for consideration by the person in the course or furtherance of business
As per section 7(1) (b) Only in case of import of services for consideration furtherance of business is not required
The condition of 'in the course or furtherance of business' is required to be fulfilled for supply under section 7(1)(a)
Section 2(17) Business
If you look at the definition of business then receipts from personal loans and advances, deposits and Bank Interest are not covered under term Business.
Questions now arise?
1. Whether amount invested in PPF & interest earned on such PPF account is in the course or furtherance of business?
Answer: Ideally, PPF is personal investment. Therefore, Interest earned on such PPF is not the business income.
2. Whether interest earned on saving account or Fixed or any deposit with Bank can be treated as 'in the course or furtherance of business'?
Answer: Saving interest and Interest on Bank deposit is also Personal income. Therefore it is not the business income.
However, if FD is made for business purposes then interest income may be considered as in the course or furtherance of business.
3. Whether Personal advances given & on which interest is earned can it be considered as 'in the course or furtherance of business'?
Answer: Personal advances are given for the purpose of interest earning shall not come under the ambit of business income. It shall not be considered as 'in the course or furtherance of business'.
4. The AAR held that interest on personal advances or bank interest is part of exempt supply. Hence it will be included for calculating the threshold of registration. But the question is whether such interest is taxable?
Answer: For the purpose of levy under GST supply shall be the precondition. If something is not supply then it can’t be taxed under GST. If something can’t be taxed under GST then how can you provide exemption under GST?
Therefore, in our opinion interest on PPF, Bank saving interest, other bank interest for personal FDs etc & Interest on personal advances will not be part of supply.
If it is not at all supply then it cannot be considered in the ambit of exempt supply. Because exemption cannot be given for the transaction which is not at all part of supply or which is not at all taxable transaction. Hence it will not be included in the aggregate turnover. In India many of senior citizens having Rent income from commercial property and interest income. If this AAR decision is considered by government then most of senior citizens have to take GST registration, which will lead to unnecessary tax compliance and harassment to senior citizens.
This is strictly our personal opinion. Above discussion cannot be considered as our professional or legal advice. Users shall consider legal provisions or take advice from experts before taking action on it.
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