GST on Payment to Foreigner for Debenture interest

Issue – Will GST under RCM will apply on interest paid on debentures to foreign party.

Legal provisions –

1) Taxable event under GST – Supply of Goods or Services or both.

2) Definition of Goods – Section 2(52) of CGST Act, 2017. ‘Goods’ means every kind of movable property other than money and securities but includes actionable claims, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

3) Section 2(101) of CGST Act: Definition of “Securities”

“securities” shall have the same meaning as assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956.

Section 2(h) of the Securities Contracts (Regulation) Act, 1956

“Securities”– include

(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;

(ia) derivative;

(ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes;

(ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(id) units or any other such instrument issued to the investors under any mutual fund scheme;

Conclusion – As discussed above Debentures covered under the definition of security and therefore it is not covered under goods. Therefore, GST will not get attract on interest paid on debentures.