GST UPDATE ON WHETHER INTEREST INCOME IS A PART OF AGGREGRATE TURNOVER? 72/2020-21

AAR rulings on different matters are creating havoc in the life of taxpayers. Many rulings like GST on sale of developed land, taxability of directors renumeration, interest income is a part of aggregate turnover, GST on cross charge etc are an indicator that it is not a wise decision to take the route of rulings for any guidance for proposed or undertaken transactions in business.
Seeing this trend, strong perception in the Trade and Industry is getting build as to why one should even approach the Advance Ruling Authority who is likely to decide the matter against the assessee and when practically there is no appeal mechanism against the said order. You can file appeal before AAAR but the revenue authorities sitting in this appeal forum also confirms the same order. Absence of judicial member at Advance ruling authority is creating this problem. Hence, judicial member should be appointed for meet the end of justice. Furthermore, Court will not accept the writ petition in each case against the order of authority of advance ruling or appellate authority of advance ruling. Hence, it is now clear message for Consultants and tax payers that they should approach advance rulings. On the other hand, if an assesseeopts the route of the adjudication, the doors of the tribunal as well as the courts would always be open to seek relief.
Recently, the AAR Gujarat in case of Shree SawaiManoharlalRathi [Advance Ruling No. GUJ/GAAR/R/2020/10, Dated: 19th May, 2020] has held that the value of exempted income, like interest on PPF, savings bank account and loans given to family/friends, will be included along with taxable supplies while calculating the threshold limit for obtaining GST registration. 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 if they are engaged in supply of both goods and services.
An individual, not engaged in any business, had filed an application 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 of Rs 20 lakh for registration under GST law. The individual, in his application, had disclosed that his total receipts in 2018-19 fiscal were about Rs 20.12 lakh, including rent receipt of Rs 9.84 lakh, while the remaining was interest on bank, PPF deposits and from personal loans extended to friends/family.
The AAR, while ruling that interest income would be included for calculating registration threshold, 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.

Entry 27(a) of the Notification No. 12/2017- Central Tax (Rate) and Entry 28(a) of the Notification No. 9/2017 -Integrated Tax (Rate) dated: 28.06.2017 relates to the exemption of services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest. 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.
However, while referring to Section 7 of the CGST Act which defines the scope of supply; it 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. When this interest is not related to furtherance of business, hence should not be taken into consideration for aggregate turnover.
This ruling has neglected the fact that applicant is not engaged in any kind of business and moreover, the interest income earned is purely his personal income and not interlinked with any business. PPF deposits, FDs and personal loan interest income cannot be classified as supply made in course of or furtherance of business. Generally, individuals deposit their money in banks or PPF a/cs as a part of investing their hard earned money and cultivating the habit of savings. On the contrary current bank account is opened to run business. It is worthwhile to note that applicant was not involved in any money lending business too. The major problem in this ruling appears is that it has failed to take into consideration the full facts of the case and the provisions of the u/s 7 of the CGST Act, 2017.
Moreover, if we refer the provisions of Income tax, Interest that gets accumulated in our savings bank account must be declared in tax return under income from other sources. Interest from both fixed deposit and recurring deposits is taxable while interest from savings bank account and post office deposits are tax-deductible to a certain extent. But they are shown under income from other sources.
Further, we enjoy a deduction uptoRs 10,000 on interest received from savings account and recurring deposits. While senior citizens get a deduction uptoRs 50,000 on their interest income from fixed deposits.
If the Income Tax provisions clearly classify the interest income in other source head rather than business income head, then GST cannot overrule such provision. In our opinion, the advance ruling decision is erroneous and should not be considered as a final verdict.
AAR is considered as solution provider but to the contrary, it is working exactly opposite of its motive. This ruling will impact a large number of homemakers, retired persons and freelancers forcing them to take GST registration. In the nutshell, the Authority failed to distinguish between earnings made in the individual capacity and in the business capacity. We can only wait for some clarifications from the end of government which can act as a burnolon the wounded and burning issues.

This is solely for educational purpose.

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GST UPDATE ON WHETHER INTEREST INCOME IS A PART OF AGGREGRATE TURNOVER? 72/2020-21

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