Interest on saving bank account, PPF and personal loans is to be included in threshold limit of 20 Lakhs for GST Registration: AAR, Gujarat ruling on application by Shree Sawai Manoharlal Rathi
Aggregate turnover for determining GST registration threshold to include Interest on ‘Saving bank deposit, PPF and Personal loan & advance’: AAR, Gujarat
Under the Goods and Services Tax law, businesses and individuals are required to obtain GST registration if their aggregate turnover is Rs 20 lakh or more.
As per section 22(1) of CGST Act, every supplier shall be liable to be registered in the State or Union Territory (other than special category states) from where he makes supply of goods or services or both, if his aggregate turnover in a financial year exceeds Rs. 20 lakhs. In case of ‘special category states’, registration is required if his aggregate turnover in a financial year exceeds Rs. 10 lakhs.
The expression “aggregate turnover” has been defined under section 2(6) of the CGST Act. Statutory text of section 2(6) is reproduced as follows:–
2 (6) “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;
The “Scope of Supply” has been defined under section 7 of the CGST Act 2017 which clearly states that the receipts should be “In the course or furtherance of Business”. Relevant extract of the Section 7 of the CGST Act as follows:
7. (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;
In light of the above statutory provisions the question arises whether the earnings made in the individual capacity like interest on saving bank deposit, loans and advances to family would also be included for the purpose of calculating threshold limit of Rs 20 lakh for GST registration or the earning/receipt made in the business capacity are only required to be included.
Recently the above case was discussed before AAR, Gujarat in the case of “Shree Sawai Manoharlal Rathi” wherein an individual, not engaged in any business, had filed an application for advance ruling before the Gujarat bench of AAR asking whether interest received from savings bank, PPF and loans and advances to family would be considered for the purpose of calculating threshold limit for registration under GST law. The individual, in his application, had disclosed that his total receipts in 2018-19 FY were about Rs 20.12 lakh, including rent receipt of Rs 9.84 lakh, while the remaining was interest on bank Rs.3,000/- Interest on PPF deposit:Rs.2,76,000/- and Interest on Personal Loans and Advances extended to friends/family: Rs.7,49,000/-.
The AAR discussed the definition of ‘aggregate turnover’ as defined under section 2(6) supra and held that the “aggregate turnover” is an all-encompassing term covering all the supplies effected by a person having the same PAN and It specifically excludes : (i) Inward supplies effected by a person which are liable to tax under reverse charge mechanism; and (ii) Various taxes under the GST law, Compensation cess.
The AAR further discussed the definition of ‘exempt supply’ as per section 2(47) of CGST Act, 2017 and held that exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017,as amended, provides a list of services exempted from payment of Central Tax on intra-State supply and Integrated Tax on Inter-State supply. Entry 27(a) of the said exemption Notification relates to services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest. Accordingly, the services regarding interest income are covered under the above refed 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.
The AAR said that the applicant is required to consider the value of both taxable supply i.e. “renting of immovable property” and exempted supply of service provided by way of extending deposits, loans or advances for which he earned interest income, to arrive at “aggregate turnover” to determine the threshold limit for the purpose of obtaining registration under the GST Act.
Accordingly, the AAR held that interest income would be included for calculating registration threshold.
Impact of the Ruling:
The said ruling of the Gujarat AAR may bother many interest income earners and retired persons for taking GST registration. However, as per Section 103 (1) of the CGST Act an Advance Ruling is binding only on the applicant and on the Officer Concerned or the jurisdictional Officer in respect of the applicant.
Further, the Authority of Advance Ruling has not distinguished between earnings made in the individual capacity and in the business capacity. The definition of “Scope of Supply” given under Section 7 of the CGST Act, 2017, which provides that the receipts should be “In the course or furtherance of Business” and for this purpose the authority has failed to discuss definition of “Business” as defined under Section 2(17) of the CGST Act, 2017. Therefore, the said ruling might be challenged before appellate authority on the said ground.
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Disclaimer: The opinion is based on my understanding of law and regulation prevailing as on the date. There is no assurance that the Revenue Authorities will agree to the view expressed above. Further, the views, thoughts, and opinions expressed in this article belong solely to the author, and not necessarily represent or reflect the views of the author’s employer, organization, or other group or individual.