INTEREST INCOME – TO BE INCLUDED IN AGGREGATE TURNOVER FOR GST

[Dr. Sanjiv Agarwal]

Under the GST regime, assessees are required to obtain registration under the GST law based on their aggregate turnover. There is a threshold exemption provided to all taxpayers (suppliers of goods and services). If the aggregate turnover exceeds such threshold limit, registration under GST is mandatory.

The normal threshold limits presently applicable w.e.f. 1.4.2019 for GST registration are as under:

For services : ₹ 20 lacs per year

For specific : ₹ 40 lakh per year

For specific category states, this limit is ₹ 10 lakh for services and ₹ 20 lakh for goods. 

Aggregate turnover

Section 2(6) of CGST Act, 2017 defines ‘aggregate turnover’ as follows:

‘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.

Thus, as per section 2(6) of the CGST Act, 2017 ‘aggregate turnover’ shall be total of the following amounts or sums in relation to a person carrying on business, that is, aggregate value of all the taxable supplies, i.e., of the following –

(i)        Aggregate value all taxable supplies of goods and/or services or both

(ii)       Value of exempt supplies of goods and/or services or both

(iii)     Value of all goods and/or services exported or both

(iv)      Inter-state supplies of persons having the same PAN

However, aforementioned value of aggregate turnover would exclude taxes, if any, charged under the CGST Act, IGST Act, SGST Act, UTGST Act and GST (Compensation to States) Act, 2017. It will also not include the value of inward supplies on which tax is payable by a person under reverse charge basis.

For the purpose of aggregate turnover, turnover shall be computed and aggregated for a person having the same Permanent Account Number (PAN) of Income Tax, taken as a whole on an all India basis.

Accordingly, ‘aggregate turnover’ means ‘Value of all (taxable + exempt supplies + exports + inter-state supplies) – (taxes + cess + value of inward supplies on which tax is payable under reverse charge) of a person having the same PAN.

‘Aggregate turnover’ shall exclude the following sums –

1. Taxes, if any, charged under the CGST Act, SGST Act and IGST Act and UTGST Act
2. Compensation Cess
3. Value of inward supplies of goods and services on which tax is levied on reverse charge mechanism (RCM).

Under section 2(47) of the CGST Act, 2017, ‘exempt supply’ means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the IGST Act, 2017. It may be noted that exempt supplies include non-taxable supplies.

Under section 2(78) of the CGST Act, 2017, ‘non-taxable supply’ means a supply of goods or services or both which is not leviable to tax under this Act or under the IGST Act, 2017.

Thus, for aggregate turnover, both exempt supplies and non-taxable supplies shall be added.

Registration

Sections 22 to 30 of CGST Act, 2017 deal with registration related provisions.

Sections 22 of the GST Act provides the list of persons who are liable to be registered under GST Act. These are as follows:

1. Every supplier who exceeds the threshold limit of aggregate turnover. The threshold limit has been prescribed as INR 20 lakhs of aggregate turnover with the exception of specified states (North Eastern and hill States), for which the limit has been fixed at INR 10 lakhs in case of services. For goods it is ₹ 40 lakh (₹ 20 lakh for North Eastern and hill States)
2. Every person who was registered under any of the laws which have been subsumed in GST. Mainly Central Excise, Service tax, VAT and CST etc.
3. The transferee or successor of an ongoing business, which gets transferred to him as a going concern.
4. Transferee in case of amalgamation, demerger of two companies pursuant to scheme approved by an order of High Court, Tribunal or otherwise. It is important to note that in this case, the registration is required from the date on which registrar of companies issuing certificate of incorporation giving effect to such order.

Controversy over what is included in aggregate turnover

Recently an issue came up before Authority for Advance Ruling (AAR), Gujarat IN RE: SHREE SAWAI MANOHARLAL RATHI [2020 (6) TMI 449 - AUTHORITY FOR ADVANCE RULING, GUJARAT]; .

The AAR came to conclusion that the applicant is required to aggregate the value of exempted interest income earned by way of extending deposits in PPF & bank saving accounts and loans and advances given to his family/friends along with the value of the taxable supply i.e. ‘Renting of immovable property’ for the purpose of calculating the threshold limit of ₹ 20 lakh for obtaining registration under GST law. While ruling that interest income would be included for calculating registration threshold, 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.

In the instant case, applicant was an individual, not engaged in any business and income / receipts comprising of savings, personal loans and advances and deposits, duly reflected in books of accounts. It was submitted that tax total receipts for financial year 2018-19 were  likely to be a total of ₹ 20,12,000/-, which includes, (i) Rent receipts: ₹ 9,84,000/,  (ii) Bank interest: ₹ 3,000/-,  (iii) Interest on PPF deposit: ₹ 2,76,000/- and (iv) Interest on personal loans and advances: ₹ 7,49,000/-.

He contended that if interest is received on loans and advances, deposits and savings bank account by an individual person, who is not engaged in any such business and who is not a money lender, then such interest receipts is not a supply and does not attracts GST, as the same is neither ‘in the course of business’ nor ‘in the furtherance of business’. Further, he relied on the definition of ‘scope of supply’ given under Section 7 of the CGST Act, 2017, clearly states that the receipts should be ‘in the course or furtherance of business’. The receipts from personal loans and advances, deposits and bank Interest are not covered under ‘business’ as per the definition  given under section 2(17) of the CGST Act, 2017. 

He sought advance ruling on the following issues:

1. Whether interest received in form of PPF would be considered for the purpose of calculating the threshold limit of ₹ 20.00 lakh for registration under GST law?
2. Whether interest received on personal loans and advanced to family/friends would be considered for the purpose of calculating the threshold limit of ₹ 20.00 lakh for registration under GST law?
3. Whether interest received on saving bank account would be considered for the purpose of calculating the threshold limit of ₹ 20.00 lakh for registration under GST law?

The AAR observed, and rightly so, that the  moot point to be decided is as to whether interest received on deposit in Public Provident Fund (PPF), personal loans & advances to family/friends and deposit in saving bank accounts, would be considered for the purpose of calculating the threshold limit of ₹ 20.00 lakh for registration under GST law?

‘Aggregate Turnover’ as defined in section 2(6) is relevant to a person to determine the threshold limit to obtain registration under the Act.

While exempt supply has been defined in section 2(47) of CGST Act, 2017, ‘Nil rated supply’ is nowhere defined in GST Law. The basic difference between nil rated and exempt supply is that the tariff is higher than 0% in case of exempt supply. But there is no tax payable due to exemption notification. Whereas in case of NIL rated supply, the tariff is at NIL rate so there is no tax without the exemption notification.

Thus, the different kinds of supplies covered under the ‘aggregate turnover’ can be as follows:

1. Taxable Supplies;
2. Supplies that have a NIL rate of tax;
3. Supplies that are wholly exempted from SGST, UTGST, IGST or Cess; and
4. Supplies that are not taxable under the Act (alcoholic liquor for human consumption and articles listed in section 9(2) and in Schedule III);
5. Export of goods or services or both, including zero-rated supplies.

In GST ‘supply’ as defined in section 7 of the CGST Act, 2017 has to be considered as a taxable event for charging GST. The liability to pay tax arises at the ‘time of supply of goods or services’. Thus, determining whether or not a transaction falls under the meaning of supply, is important to decide GST’s applicability. Accordingly, the supply includes sale, transfer, exchange, barter, license, rental, lease and disposal. If a person undertakes either of these transactions during the course or furtherance of business for consideration, it will be covered under the meaning of supply under GST.

To be taxable, the following tests are essential :

a) Supply is done for a consideration, and

b) Supply is done in course of furtherance of business.

Notification No. 12/2017-Central Tax (Rate) and Notification No.9/2017-Integrated Tax (Rate), both 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 Notification No. 12/2017 and Entry 28(a) of the Notification No. 9/2017 relates to services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest.

The services regarding interest income are covered under the above 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. Therefore, in given case GST was not leviable on interest income earned by the Applicant.

However, in this case, the applicant also supplied services of ‘renting of immovable property’ along with activity of providing services by way of extending deposits, loans or advances where the consideration is represented by way of interest. His turnover from the rent income was ₹ 9.84 lakh but the transaction of ‘renting of immovable property’ is chargeable to GST.

The AAR observed that going by the definition of aggregate turnover in section 2(6),  the applicant is required to consider the value of both the taxable supply i.e. ‘renting of immovable property’ and exempted supply of service provided by way of extending deposits, loans or advances for which they earned interest income, to arrive at ‘Aggregate Turnover’ to determine the threshold limit for the purpose of obtaining registration under the GST Act.

It thus concluded that in view of the above, the Applicant is required to aggregate the value of exempted interest income earned by way of extending deposits in PPF & bank saving accounts and loans and advances given to his family/friends along with the value of the taxable supply i.e. ‘renting of immovable property’ for the purpose of calculating the threshold limit of ₹ 20.00 lakh for obtaining registration under GST law. All the three questions were answered in affirmation and against the applicant.

A similar view was taken by AAR, Karnataka IN RE: M/S. ANIL KUMAR AGRAWAL [2020 (5) TMI 221 - AUTHORITY FOR ADVANCE RULING, KARNATAKA]

Conclusion

Interest, irrespective of nature is part of aggregate turnover and therefore, to be considered for the purpose of registration.

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