Interest on security deposit

This query is : Resolved

Sugam Sharma (Querist)
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26 May 2018 Dear Sir,

My Client has taken an agency and deposit some amount as security to the Dealer. The dealer gave interest on such deposit. My query is that whether interest income is counted as an exempt turnover while calculating GST Turnover or it is treated as a transaction in money and out of scope from GST.

RAJA P M

RAJA P M (Expert)
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26 May 2018 As per my view., GST not applicable for the Interest...

Sugam Sharma

Sugam Sharma (Querist)
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26 May 2018 Yes Interest is exempt but my query is different. i.e. whether interest income is counted as an exempt turnover while calculating GST Turnover or it is treated as a transaction in money and out of scope from GST.

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Vishakha Kejriwal.

Vishakha Kejriwal. (Expert)
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28 May 2018 Interest is an exempt supply as per Not. 12/2017- Central Tax (Rate). It would be counted as exempt turnover.

RAJA P M

RAJA P M (Expert)
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28 May 2018 As per my view.,

It's not supply from the dealer. It's just a money related income. No need show it as Excempt Turn Over...

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Vishakha Kejriwal.

Vishakha Kejriwal. (Expert)
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28 May 2018 It is a supply under GST and therefore an exempt supply under the Notification. If it was outside the ambit of GST there was no need to exempt it under a Notification,

Sugam Sharma

Sugam Sharma (Querist)
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29 May 2018 @ Vishakha Ji, I have doubt that if we treat interest as exempt outward supply then whether apportionment of credit provision applicable or not...

Vishakha Kejriwal.

Vishakha Kejriwal. (Expert)
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29 May 2018 Please refer to Rule 42 of the CGST Rules as amended consequent to the clarifications made in the 25th GST council meeting. The value of exempt supplies while calculating input credit reversal shall exclude the value of services where consideration is represented by interest except for some companies like the banking companies; Hence you are saved from reversing ITC because of the said provision.

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RAJA P M

RAJA P M (Expert)
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29 May 2018 As per Section 2(83) of the Central Goods and Services Tax (CGST) Act, 2017, unless the context otherwise requires, the term “outward supply” in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business.

So,
The interest is received based on the deposit. It's not a supply. The interest is not a supply no need to calcualte or shown under GST in anywhere

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Sunil

Sunil (Expert)
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23 June 2021 As per ruling of GST Authority of Advance Ruling in Karnataka, The value of supply by way of extending loans and advances as far as consideration is interest in an exempt service. The value of the service is the amount of deposit or advance extended. Therefore if you give money to PPF or a loan your loan amount or what you extend as deposit or advance is the value of the service that has to be considered as the aggregate turnover and is exempt from levy of GST. Therefore the amount of fixed deposit or what you invest in PPF etc. is the amount you would show as your aggregate turnover of your supplies even though exempt. The only grey area is the savings bank account where you are earning interest on a daily product of the balance lying in your savings bank account. It is not clear whether the cumulative daily balance in your savings account is considered as your aggregate turnover.

In a similar ruling few days before the Karnataka Ruling, the authority in Gujarat ruled that exempt interest is part of aggregate turnover.

As far as these rulings are concerned it is not a ruling you can refer to in your own situation as rulings are applicable only for the applicant. Therefore you will need to apply for your own ruling in whichever state you are if you are willing to spend Rs.10,000 on the fees. As a caution these rulings can have influence on where you seek a ruling and maybe the authority ruling on your application may consider the Karnataka ruling as it is more beneficial for the revenue to widen their tax net and collect more GST.