Interest on bank deposit, PPF, loans to be included for calculating GST registration threshold, rules AAR

June 23, 2020 6:44 PM

AAR ruled that the applicant is required to aggregate the value of exempted interest income along with the value of the taxable supply.

rupee, tax saving, gst on savingsThe value of supply of exempt services like interest or discount, shall not be taken into account in computing aggregate turnover in order to determine eligibility for composition scheme.
  • Rajat Mohan

Recently Gujarat AAR has passed an order which will impact high net worth individuals including homemakers, retired persons and freelancers in case aggregate earnings of such individuals crosses the threshold limit of registration of INR 20 lakhs. An individual, not engaged in any business, had filed an application before the Gujarat bench of AAR asking whether interest received from the savings bank, PPF, and loans and advances to the family would be considered for the purpose of calculating the threshold limit. His receipts for the FY 2018-19 were INR 20.12 lakh, including rent receipt of INR 9.84 lakh, while the remaining were bank interest, interest on PPF deposit and interest on Personal Loans and Advances.

AAR observed that going by the definition of “aggregate turnover”, 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 determine the threshold limit.

Based on the facts, AAR ruled that the applicant is required to aggregate the value of exempted interest income along with the value of the taxable supply i.e. “Renting of immovable property” for the purpose of calculating the threshold limit for obtaining registration.

Even before this ruling was published, it was well-drafted in the law that aggregate turnover includes exempt as well as taxable income and if the same crosses the threshold limit, the person had to take registration. However, the authority shall bifurcate the income genera
ted by an Individual in business/professional capacity or personal capacity.

This AAR takes large numbers of individual taxpayers under the bracket of GST registration. This will slit in their savings in the form of increase in compliance cost and working capital requirement due to introducing of tax in their receipts which earlier was not chargeable to tax.

One should take note that the value of supply of exempt services like interest or discount, shall not be taken into account in computing aggregate turnover in order to determine eligibility for composition scheme. However, the same shall be considered while determining the turnover limit in case of normal taxpayers.

So, interest income has been an area of many clarifications and circulars by the government time and again. It is expected from the department to conduct detailed analysis and give clarifications on all the associates matters of interest receipts in the GST law.

Rajat Mohan is Senior Partner at AMRG & Associates. Views expressed are the author’s personal. 

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