Interest Income To Be Included In Aggregate Turnover For GST
Registration Threshold: Gujarat AAR Ruling
The Gujarat Authority for
Advance Ruling (AAR) has, in a significant decision, clarified that interest
income received by individuals from sources such as personal loans,
deposits in public provident fund (PPF), and savings bank accounts must be
included in the calculation of the aggregate turnover to determine
liability for GST registration. The ruling was delivered in the case of Shree
Sawai Manoharlal Rathi, an unregistered individual taxpayer who approached
the Authority seeking clarity on whether his interest earnings would require
him to register under GST.
Authority: Gujarat Authority for Advance Ruling (GST)
Advance Ruling No.: GUJ/GAAR/R/2020/10
Application No.: Advance
Ruling/SGST&CGST/2018/AR/50
Date of Ruling: 19.04.2020
Background of the Case
The applicant, Mr. Shree
Sawai Manoharlal Rathi, is an individual residing in Surat, Gujarat. He
submitted before the Authority that he is not engaged in any business activity
and that his income arises purely from savings, rent, personal loans and
advances, and interest on deposits. According to his projections for the
financial year 2018–19, his total estimated receipts amounted to ₹20.12
lakhs, comprised of:
- Rent from property:
₹9.84 lakhs
- Interest from PPF:
₹2.76 lakhs
- Interest from personal loans and
advances to friends/family: ₹7.49 lakhs
- Interest from savings bank account:
₹3,000
Mr. Rathi argued that the
interest income he received was not in the course or furtherance of business,
and hence, should not be treated as a “supply” under Section 7 of the CGST Act,
2017. Consequently, he believed that such receipts should be excluded when
determining the ₹20 lakh threshold limit for GST registration.
Legal
Issues and Questions Raised
The applicant
specifically sought clarity on three questions:
1. Whether
interest received from PPF would be included in the ₹20 lakh threshold
limit for registration?
2. Whether
interest earned from personal loans and advances to friends and
relatives would be considered?
3. Whether
interest from a savings bank account would be included in computing the
threshold?
These queries revolve
around the interpretation of the term “aggregate turnover” under Section
2(6) of the CGST Act, and whether such exempt or non-business receipts are to
be included in the computation for GST registration purposes.
Relevant
Provisions Considered
The Authority examined
several important provisions under the GST law:
- Section 2(6)
of the CGST Act defines “aggregate turnover” to include the
aggregate value of taxable supplies, exempt supplies, exports, and
inter-State supplies. It is noteworthy that exempt supplies are
included in the turnover, even though they are not taxable.
- Section 2(47)
defines “exempt supply” as a supply which attracts nil rate of tax,
or is wholly exempt from tax under Section 11, or under Section 6 of the
IGST Act, and includes non-taxable supplies.
- Section 7(1)
defines “supply” to include all forms of supply of goods or
services made for a consideration in the course or furtherance of
business.
- Entry 27(a) of Notification No.
12/2017-Central Tax (Rate) dated 28.06.2017 specifically exempts
services by way of extending loans, deposits, or advances where the
consideration is represented by interest.
The Authority noted that
while interest income from loans and deposits is exempt under the above
notification, it still qualifies as a supply of service and, therefore,
must be included in the computation of aggregate turnover.
Authority’s
Analysis and Findings
The AAR observed that
though Mr. Rathi is not engaged in any formal business activity, he still
undertakes the supply of services in the form of:
1. Renting
of immovable property (taxable supply),
2. Extending
deposits and personal loans (exempt supply, as interest income).
The Authority held that rent
income of ₹9.84 lakh is taxable under GST, and the interest income
from PPF, personal loans, and savings bank accounts (totalling ₹10.28 lakh) is exempt.
However, both taxable and exempt supplies are required to be aggregated
while determining the threshold for registration under Section 22 of the CGST
Act.
The Authority emphasized
that even though interest is exempt from GST, it is still a consideration
for supply of service, and hence forms part of aggregate turnover.
The key condition for registration under GST is not merely the value of taxable
supplies, but the total of taxable and exempt supplies.
Ruling by
the AAR
The Gujarat AAR ruled as
follows:
- Interest from PPF:
Must be included in aggregate turnover – Yes
- Interest from personal loans to
friends/family: Must be included – Yes
- Interest from savings bank accounts:
Must be included – Yes
Accordingly, since Mr.
Rathi’s aggregate turnover exceeds ₹20 lakh, he is liable to register
under GST, even though his taxable turnover (rent income) is less than ₹20
lakh.
Implications
of the Ruling
This ruling has
significant implications for individuals, particularly senior citizens,
investors, and those who derive passive income through interest on loans and
deposits. It clarifies that even non-business interest income, when
it falls under the category of exempt supplies, must be considered while
computing the threshold limit for GST registration.
It also highlights the broad
scope of "aggregate turnover", making it essential for even
individuals without any formal business to evaluate whether their combined
exempt and taxable income breaches the GST registration threshold.
This AAR ruling aligns
with the government’s intention to bring all such services under scrutiny, even
if they are exempt from tax, ensuring that individuals do not escape the
compliance framework solely because the activity is non-business in nature.
Conclusion
The Gujarat AAR ruling in
the case of Shree Sawai Manoharlal Rathi establishes a clear position: interest
income received by individuals, even if not in the course of business, is an
exempt supply and must be included in the aggregate turnover for GST
registration purposes. Therefore, if the combined receipts (taxable + exempt)
cross the ₹20 lakh limit in a financial year, GST registration becomes
mandatory, regardless of whether the individual is engaged in a business or
not.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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