TYPES OF INTEREST INCOME AND ITS TAXABLITY
As per the provision of GST Law a person is required to take registration if aggregate turnover exceeds the threshold limit. Exempt income is part of aggregate turnover and hence question arise whether all types of interest income is part of aggregate turnover?
Meaning of Interest
“Interest” means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) but does not include any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised;”(defined in exemption notification)
Taxability of Interest
Interest income is supply under GST however to provide relief exemption related to interest income (Entry 27(a)):
Services by way of— (a) 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);
(b) inter se sale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange or amongst banks and such dealers.
Interest paid for using credit card services since this is specifically excluded from the exemption.
Value of Supply
‘The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply (Section 15 of CGST Act, 2017).
Interest or late fee or penalty for delayed payment of any consideration for any supply is included in value of supply as per Section 15(2)(d). The GST rate applicable to the main supply in the Tax Invoice against which interest is being received for delay in payment will be the rate applicable to Interest.
The taxability of interest on various types of interest is shown in the table below (illustrative list):
| Types of interest | Taxable/Not Taxable | Reason |
| · PPF interest
· Saving bank interest · Current account bank interest · Fixed deposit bank interest · Interest on bonds · Interest on debenture · Interest on mutual fund · Interest on Loan and overdraft facility · Interest on Cash credit Facility · Interest income on partners fixed capital credited to partner’s capital account · Interest income on partners variable capital credited to partner’s capital account · Interest received on loan/advances given · Interest on Post office deposits · Interest income on National Savings certificate (NSCs) · Accumulated Interest (along with principal) received on closure of PF account · Interest income credited on PF account · Interest income on National Pension Scheme (NPS) · Receipt of maturity proceeds of life insurance policies · Interest on Personal loan/ Advances from family friends and relative* · Additional Penal interest on delayed EMI payment (Circular No. 102/21/2019-GST) |
Not Taxable
|
Covered under exemption entry 27(a)
Services by way of— (a) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount |
| Interest on Commercial paper | Not Taxable | The transactions in commercial paper (CP) and certificate of deposit (CD) are like promissory notes. As a result, they are like money, and hence, GST on interest Income is not levied.
|
| Default of credit card charges
Interest on EMIs transaction through credit card |
Taxable | Interest charged on default of credit card balances is specifically excluded from Entry 27. |
Relevant provision of law regarding exclusion of interest income in aggregate turnover:
“Aggregate turnover include exempt Supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount in case of supply of services but not in case of engaged in exclusively in the supply of goods”
A person shall be engaged exclusively in the supply of goods even if he is engaged in exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount. (Explanation was added in the Section 22)
Example: If person is engaged exclusively in sale of goods is 37 lacs and interest income i.e., exempt under entry 27(a) is of Rs.5 lacs, then such person is not required to take GST Registration as per explanation under Section 22. However, for services there is no such provision in the act.
Our observation regarding the inclusion of interest income in aggregate turnover:
We need to consider the fact that earning of interest and its nature. If it is personal in nature and never into any business, then such income should not be part of Aggregate turnover. The exemption notification cannot exempt a transaction which per se is not a supply.
Objective of earning income need to be considered to decide its taxability. The interest earned in case of PPF interest, Saving Interest etc. is solely from Investment and not by way of any money lending business. Interest on PPF, bank saving interest, other bank interest for personal FDs, and so on will not be included in the supply because they are not in the course or furtherance of business.
Many senior citizens in India have interest income that is not in the course or furtherance of business. If they have some taxable income along with interest income as a result of the AAR decision, they will be required to register for GST if their aggregate turnover exceeds the threshold limit, which will result in unnecessary tax compliance and harassment.
The decisions of Advance Ruling Authority are binding to the person who seeks such Ruling and its Jurisdictional Authority and not to others. Clarification on the issue is awaited from government to avoid any litigation on the issue.
Related Advanced ruling for reference:
- Shree Sawai Manoharlal Rathi
- Anil Kumar Agrawal
Disclaimer: This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.
