Salary from company is part of aggregate turnover for GST threshold?

Partner salary, income from salary from  Company and various other income interest  on Loan and deposit , Interest on debenture , rent on commercial building , rent on residential unit and Capital Gain on Shares will be added for Aggregate turnover In GST for computing threshold limit of Rs,. 20 Lacs or 40 Lacs. Lets do the analysis one by one which component of the income will be added and which component will be excluded for aggregate Turnover as per GST.

In this regard, we invite to reference to the definition of “Aggregate Turnover”, in terms of Section 2(6) of the CGST Act 2017, which reads 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 good s 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.”

It is clearly evident from the above definition that the Aggregate turnover is equal to the sum of value of all taxable supplies, value  of exempt supplies, value of supplies towards export of goods or services or both and value of inter-state supplies of persons having same Permanent Account Number, to be computed on All India basis excluding the value of  inward  supplies  on  which  tax  is  payable  by  a  person  on  Reverse charge basis.

Section 7(1)(a) of the CGST Act 2017 stipulates that any transaction must consist the following  three components to get qualify as ‘Supply ‘.

A] The transaction must involve a supply, of good s or services or both, such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made .

B] The transaction must before a consideration by a person

C]  The transaction must be in the course or furtherance  of business.

In view of the above , income  received form each sources has to be examine with reference to section 7[1][a] that constitute supply or not.

A person has following income which of the following income will be add up to aggregate turnover for threshold limit :

a) Partner’s salary as partner from my partnership firm,

b) Salary as director from Private Limited company

c)  Interest income  on partners fzxed  capital  credited  to partner’s capital account

d) Interest income on partners variable capital credited to partner’s capital account

e) Interest received on loan given,

f) Interest received on ad vance given

g) Interest accumulated along with deposit/fzxed deposit

h) Interest income received on deposit/fzxed deposit

i) Interest received on Debentures

j) Interest accumulated on debentures

k) Interest on Post office deposits

l) Interest income on National Savings certificate (NSCs)

m) Interest income credited on PF account

n) Accumulated Interest  (along with principal )  received  on closure of PF

o) Interest income on PPF

p) Interest income on National Pension Scheme (NPS)

q) Receipt of maturity proceed s of life insurance policies

r) Dividend on shares

s) Rent on Commercial Property

t) Residential Rent

u) Capital gain loss on sale of shares

Interest income  received  from  different  sources  :  The  applicant  is in receipt of interest income from different sources  as  mentioned  at  para  2 under (c ), (d) , (e), (f) , (g), (h), (i), U), (k) , (1), (m), (n), (o), (p). All these interest income  are  out  of  the  deposits /loans extended  by the  applicant. The 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), falling under SAC 9971, are exempted under Entry No.27(a) of the Notification No.12/2017-Central Tax (Rate) dated 28.06.2017.

Thus the interest earned by the applicant, out of the deposits/ loans/ advances extended, amounts to consideration and is exempted by virtue of entry number  mentioned supra. Therefore in the instant case extending the deposits/ loans/ advances by the applicant is nothing   but   exempted   service   and   the    actual    amounts    of deposits/ loans/ advances become the value of the service. Thus these amounts are to be included in the aggregate turnover for registration, under the provisions of GST Act.

Partner’s salary, received as partner, from applicant’s partnership firm

 The applicant is  in  receipt  of  certain  amount  termed  as  partner’s salary from  the  firm where  the  applicant  is also  a partner.  The  applicant has not furnished any documents relevant to the issue, such as copy of agreement, appointment order etc., so as to decide whether  the applicant is an employee of the partnership firm or not. In case. if the applicant is a working partner  and is getting  salary then  the  said salary is neither  supply of goods nor supply of service in terms of clause  1 of Schedule III of CGST Act 2017 . Further, in case if the applicant is in  receipt  of  the  amount towards his share of profit from the said partnership firm, then also the said income is not under the purview of GST as the share of profit is nothing but application of money and hence the said salary is not required to  be included in the aggregate turnover for registration  under  the  provisions  of GST Act.

Salary  received  as  Director   from  a  Private   Limited   Company  :

The applicant is in receipt of certain amount termed  as salary as Director of a private limited company. Two possibilities may arise with  regard to the instant issue of amount received by the applicant. The first  possibility  that the applicant  is the employee  of the  said company  (Executive Director) , in which case the services of the applicant as an  employee to the employer are neither treated as supply of  goods  nor  as  supply of  services, in terms of Schedule III of CGST Act 2017.

The second possibility that the applicant is the nominated director (non Executive Director) of the company and provides the services to the said company. In this case the remuneration paid by the company is exigible to GST in the hands of the company under reverse charge mechanism under section 9(3) of the CGST Act 2017 , in the hands of the company, under entry no. 6  of Notification No. 13/ 2017-Central Tax (Rate) dated 28.06.2017.

 In the instant case the applicant has not furnished any documentary evidence such as copy of agreement between the applicant and the said private company, copy of appointment order, details of ESI, PF deductions etc., so as to decide whether the applicant is in receipt of salary as an employee or as an independent director. Thus in the absence of any documentary evidence, it is not possible to decide whether the amount received by the applicant is towards his services as an Executive Director or

In view of the above, the remuneration received by the applicant as Executive Director is not includable in the aggregate turnover, as it is the value of the services supplied by the applicant being an employee. Further if the applicant receives the remuneration as a Non-Executive Director, such remuneration is liable to tax under reverse charge mechanism under section 9(3) of the CGST Act 2017, in the hands of the company, under entry no. 6 of Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017. Thus the value of the said services of the applicant being a Non-Executive Director are includable in the aggregate turnover, as it is the value of the taxable services supplied by the applicant, though the tax is discharged by the private limited company, under reverse charge mechanism

Rental   income   on   Commercial   Property  :

The  transaction   of rental/ lease of  commercial  property  amounts  to  supply;  applicant  receives periodical income towards the impugned supply of service & the  same is in the course or furtherance of business and hence the  said   transaction amounts to supply in terms of Section 7(1)(a) of the CGST Act 2017.  Thus it is a taxable supply of service having SAC 997212 and  therefore  the value of such supply is to be included in the aggregate  turnover,  for registration.

Rental income on Residential Property

The transaction of rental/ lease of residential property amounts to supply; applicant receives periodical income towards the impugned supply of service & the same is in the course or furtherance of business and hence the said transaction amounts to supply in terms of Section 7(1)(a) of the CGST Act 2017.

However “Services by way of renting of residential dwelling for use as residence, classified under SAC 997211” are exempted from the tax (GST) in terms of entry number 12 of the Notification No. 12/2017 dated 28.06.2017. Thus the impugned supply of service of renting of residential property becomes an exempted supply. Aggregate Turnover includes the value of the exempted supplies also. Therefore the income received by the applicant towards rent of residential property is to be included in the aggregate turnover.

life insurance policies, dividend on shares and capital gain/ loss on sale

The applicant is also in receipt of income out of maturity proceeds of life insurance policies, dividend on shares and capital gain/ loss on sale of The term ‘Securities’, which has the same meaning assigned to it in clause 2(h) of Securities Contracts (Regulation) Act 1956, in terms of Section 2(101) of the CGST Act 2017, includes shares, scrips, stocks, bonds, derivative instruments etc., that have been explicitly excluded from the purview of GST, by virtue of its exclusion from the definition of ‘goods’ and ‘services’, as contained in Section 2(52) and Section 2(102) of the CGST Act respectively .  In  the  instant   case   the   dividend   on   shares,   capital gains/ losses on sale of shares are relevant to the shares (securities) and the income earned in this relation  is  nothing  but  application  of  money. Therefore this income earned out of shares, which are excluded from the definition of goods or services, also gets excluded from the said definition of goods / services. Therefore they are not relevant to the aggregate  turnover and hence are not required to be added to the aggregate turnover for registration under the provisions of GST Act

The applicant is also in receipt of income out of maturity proceeds of life insurance policies. The impugned income would be received on maturity of the insurance policies i.e. on closure of the insurance contract consequent on maturity of the said policies. The insurance premium of policies is taxable under GST, being the consideration for the services provided by the insurance companies. Therefore on completion of the said contract / maturity of the policy, there would not be any service involved between the policy holder and the insurance company. Therefore the amounts received on maturity of the insurance policies are not relevant to the aggregate turnover and hence are not required to be added to the aggregate turnover for registration under the provisions of GST Act

Above Issue have been resolved in AAR Karnatka in case of Anil Kumar Agrawal

Disclaimer : 

The contents of this article are solely for information and knowledge and does not constitute any professional advice or recommendation. Author does not accept any liability for  any loss or damage of any kind  arising out of this information set out in the article and any action taken based thereon.

About the Author: Author is  Sr. Partner of   G R A N D M A R K & ASSOCIATES , Chartered Accountants in  Gurugram [ Haryana]  and Domain Head of  GST Department of GMA  . He can be reached at  [email protected].  WWW. grandmarkca.com