Loan servicing charges fall outside the GST exemption for lending where consideration is not interest or discount.

Services by way of extending loans or advances are exempt only when the consideration is represented by interest or discount under the relevant exemption entry. The notification expressly excludes service fees and other charges from the definition of interest, so amounts recovered as service charges or borrowing cost do not fall within the exemption. On the stated facts, the society charged members service charges instead of interest or discount, and the lending activity was therefore taxable under GST.

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Issues: Whether service charges or other borrowing costs recovered for extending loans or advances to members fall within the exemption for services by way of extending deposits, loans or advances where the consideration is represented by way of interest or discount.

Analysis: Entry 27 of Notification No. 12/2017-Central Tax (Rate) exempts services by way of extending deposits, loans or advances only to the extent the consideration is represented by way of interest or discount. The notification also defines interest to exclude any service fee or other charge in respect of moneys borrowed or debt incurred. On the facts, the society recovered service charges or borrowing cost, not interest or discount. Such charges therefore do not fall within the exempt entry.

Conclusion: The service of extending loans or advances for service charge or other borrowing cost is not exempt and is liable to GST, against the assessee.

Ratio Decidendi: The exemption for lending services applies only where the consideration is interest or discount, and service fees or other charges recovered for the loan are outside the scope of that exemption.

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