Gujarat AAR in its ruling dated 19.05.2020 (Advance Ruling No. GUJ/GAAR/R/2020/10) in case of Shree Sawai Manoharlal Rathi has adjudged that interest received from PPF, personal loans and advances to family / friends and Saving Bank Account would be included in aggregate turnover viz threshold limit of Rs 20 lakh for registration under GST Law.
Facts of the Case
The applicant is an individual having not engaged in any business. His receipts are only from savings, personal loans and advances and deposits, which are reflected in the Income Tax Returns.
The applicant’s estimated receipts for the F.Y. 2018-19 is likely to be totally Rs.20,12,000/-, which includes,(i) Rent receipts: Rs.9,84,000/-, (ii) Bank interest: Rs.3,000/-, (iii) Interest on PPF deposit: Rs.2,76,000/- and (iv) Interest on Personal Loans and Advances: Rs.7,49,000/-
Questions on which Ruling was sought
- Whether Interest received in form of PPF would be considered for the purpose of calculating the threshold limit of Rs.20.00 Lakh for registration under GST Law?
- Whether Interest received on Personal Loans and Advanced to family/friends would be considered for the purpose of calculating the threshold limit of Rs.20.00 Lakh for registration under GST Law?
- Whether Interest received on Saving Bank Account would be considered for the purpose of calculating the threshold limit of Rs.20.00 Lakh for registration under GST Law?
Highlights and Ruling by Gujarat AAR
- The “aggregate turnover” is an all-encompassing term covering all the supplies effected by a person having the same PAN. It specifically excludes: i) Inward supplies effected by a person which are liable to tax under reverse charge mechanism; and ii) Various taxes under the GST law, Compensation cess.
- The different kinds of supplies covered under the “aggregate turnover”are:
(i) Taxable Supplies;
(ii) Supplies that have a NIL rate of tax;
(iii) Supplies that are wholly exempted from SGST, UTGST, IGST or Cess; and
(iv) Supplies that are not taxable under the Act (alcoholic liquor for human consumption and articles listed in section 9(2) and in Schedule III);
(v) Export of goods or services or both, including zero-rated supplies.
- Supply has two important elements:
a) Supply is done for a consideration;
b) Supply is done in course of furtherance of business.
- It is revealed that the applicant is an individual with an annual turnover of more than Rs.20 Lakh. Since this income is interest-related, the turnover is exempt from GST. However, the Applicant also supplies services of “Renting of immovable property” along with activity of providing services by way of extending deposits, loans or advances where the consideration is represented by way of interest. His turnover from the rent income is Rs.9.84 Lakh and we know that this transaction (“Renting of immovable property”) is chargeable to GST. However, his taxable turnover is only Rs.9.84 Lakh. 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 arrive at “Aggregate Turnover” to determine the threshold limit for the purpose of obtaining registration under the GST Act.
In view of above the Gujarat AAR concluded that the Applicant is required to aggregate the value of exempted interest income earned by way of extending deposits in PPF & Bank Saving accounts and loans and advances given to his family/friends along with the value of the taxable supply i.e. “Renting of immovable property” for the purpose of calculating the threshold limit of Rs.20.00 Lakh for obtaining registration under GST law.
Our View
The ruling of Gujarat AAR is on the expected lines in view of the fact that aggregate turnover includes exempt supplies and interest on loans and advances being an exempt supply would form part of aggregate turnover.
Accordingly by operation of Section 22(1) of the CGST Act, 2017, if the aggregate turnover exceeds the prescribed limit of Rs 10 lakhs (for Nagaland, Manipur, Tripura and Mizoram) or Rs 20 lakhs (for rest of India) registration would be required to be obtained in the State from where taxable supplies are being made. In case of person exclusively engaged in supply of goods the threshold limit is Rs 40 lakhs as per Notification No. 10/2019-Central Tax dated 07.03.2019 subject to certain exceptions.
However the above limits is subject to Section 23 of the CGST Act, 2017 according to which if a person is exclusively engaged in exempt supplies , registration would not be required to be obtained even if aggregate turnover exceeds Rs 40 lakh / Rs 20 lakh / 10 lakh.
The order of Gujarat AAR is given below for ready reference of our readers:
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