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Understanding GST on Interest Income of Individuals

In the GST regime, individuals and businesses are required to obtain registration under the GST Act based on their aggregate turnover. However, there has been some confusion regarding whether interest income should be considered for GST purposes. In this article, we will delve into the concept of interest income, examine its inclusion in the aggregate turnover, explore the importance of turnover in the state, and discuss the test to determine taxable income. We will also consider the opinion of the judiciary and provide some key points for consideration. So, let's begin.

Concept of Interest Income

Interest income refers to the amount earned from various financial products, accounts, and investments. It is the income generated when you lend money to another entity, deposit your funds with a bank or financial institution, or invest your money in certain programs. Interest income is usually paid at a set interest rate and is often paid periodically, such as monthly, quarterly, semi-annually, or annually.

Inclusion of Interest Income in GST Regime

Under the GST Act, interest income has been specifically assessed within the framework of exempted services. According to Entry 27(a) of notification No. 12/2017 and Entry 28(a) of notification No. 9/2017, services in the form of providing deposits, loans, or advances, where the consideration is in the form of interest, are exempt from paying GST. This means that individuals who have only interest income from deposits, loans, or advances, including interest income received from PPF or savings bank accounts, do not need to register under GST.

Understanding Aggregate Turnover and its Inclusion

Aggregate turnover, as defined under the GST Act, refers to the total value of all taxable supplies, exempt supplies, exports of goods or services, and interstate supplies made by a taxpayer. It is calculated at the PAN level and does not include tax components like Central Tax, State Tax, Union Territory Tax, Integrated Tax, and Cess. The taxable value does not include purchases where a person is obliged to pay tax under the reverse charge mechanism. Sales subject to the reverse charge must continue to be part of the taxable transactions in the aggregate turnover.

Importance of Turnover in the State

While aggregate turnover is calculated at the PAN level, state turnover refers to the aggregate value of all taxable and non-taxable supplies made within a state by a taxable person. It includes exempt supplies, exports of goods or services, and interstate supplies made from a state. State turnover is important for determining the applicability of taxes under the CGST Act, SGST Act, and IGST Act.

Test to Determine Taxable Income

In order to determine the taxable income under GST, it is important to understand the concept of "supply" as defined in section 7 of the CGST Act, 2017. According to this definition, a supply is considered taxable if it is made for consideration and is part of a business activity. Therefore, if a person carries out any transaction for consideration in the course or furtherance of a business, it will be treated as a supply under GST. The taxable income is calculated based on such supplies.

Exemption of Services under the GST Act

Under notification No. 12/2017-Central Tax (Rate) and notification No. 9/2017-Integrated Tax Rate, services in the form of providing deposits, credits, or loans, where the consideration is in the form of interest, are exempt from paying GST. This means that individuals who provide services by giving deposits, loans, or advances and earn interest income are not required to charge GST on such activities.

Opinion of Judiciary

The issue of including interest income in the calculation of the registration threshold under the CGST Act, 2017 came before the Authority for Advance Ruling (AAR), Gujarat. In the case of Shree Sawai Manoharlal Rathi (2020), the AAR held that the value of exempt interest income earned from deposits in PPF, bank savings accounts, loans, and advances to family/friends should be aggregated with the value of taxable performance, such as the lease of immovable property, to compute the limit of Rs. 20 lakh for obtaining registration under the CGST Act, 2017. This means that individuals who have both interest income and other taxable activities must consider the exempt interest income while determining their eligibility for GST registration.

Points for Consideration

To summarize the points discussed above:

  • Interest income is considered an exempt service as it does not fall under the definition of supply and is not against any consideration.
  • If an individual has only interest income and no other taxable goods or services, they are exempt from GST registration.
  • However, if an individual is engaged in other taxable activities along with interest income, the exempt interest income will be considered while determining the registration threshold under the CGST Act, 2017.

Sum Up

In conclusion, interest income is exempt from GST under the specific provisions of the GST Act. Individuals who have only interest income from deposits, loans, or advances are not required to register under GST. However, if an individual has both interest income and other taxable activities, the exempt interest income must be taken into account when calculating the registration threshold. It is important to understand the definitions and provisions of the GST Act to comply with the regulations and avoid any unnecessary obligations.

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Conclusion

Understanding the treatment of interest income under the GST regime is crucial for individuals and businesses. While interest income is exempt from GST, it is important to consider other taxable activities when determining the registration threshold. By staying informed about the provisions of the GST Act and seeking professional advice, individuals can ensure compliance with the regulations and avoid any unnecessary obligations

author

The Tax Heaven

Mr.Vishwas Agarwal✍📊, a seasoned Chartered Accountant 📈💼 and the co-founder & CEO of THE TAX HEAVEN, brings 10 years of expertise in financial management and taxation. Specializing in ITR filing 📑🗃, GST returns 📈💼, and income tax advisory. He offers astute financial guidance and compliance solutions to individuals and businesses alike. Their passion for simplifying complex financial concepts into actionable insights empowers readers with valuable knowledge for informed decision-making. Through insightful blog content, he aims to demystify financial complexities, offering practical advice and tips to navigate the intricate world of finance and taxation.

Frequently Asked Questions

GST rates are commonly 5%, 12%, 18%, and 28%, with some items exempted or taxed at 0%.
 

GST stands for Goods and Services Tax, a comprehensive indirect tax levied on the supply of goods and services in India.

Yes, GST is applicable to interest income earned by individuals under certain circumstances.

GST is applicable on interest income when an individual provides services or lends money in the course of business or profession.

The GST rate on interest income is usually 18%, but it may vary depending on the nature of the transaction and the applicable GST rules.

Yes, small service providers with an aggregate turnover below the prescribed threshold may be exempt from GST on interest income.

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