Interest on Deferred Land Payment Installments Attracts 18% GST Under Section 15(2)(d) as Supply of Service

The AAR, Andhra Pradesh determined that interest received on annual installments for land allotted by a corporation is liable to GST at 18%. While sale of land itself is not taxable under Schedule III, the agreement creating payment obligations constitutes a supply of service under Schedule II. The interest component falls under Section 15(2)(d) of the GST Act as part of the taxable supply. The Authority rejected the applicant corporation's contention that such interest should be exempt, ruling that the contractual interest on deferred land payments attracts GST liability.

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Issues:
Taxability of interest amount receivable on annual instalments for land allotted by a corporation to entrepreneurs.

Analysis:
The Authority for Advance Ruling, Andhra Pradesh, addressed the issue of whether the interest amount receivable on annual instalments for land allotted by a corporation to entrepreneurs is liable to GST. The applicant, a corporation, allots land to entrepreneurs, collecting 25% of the land cost upfront and the remaining 75% in 8 annual instalments with interest. The interest income is recognized in the financial year of sale agreement execution. The applicant contended that the interest is taxable under GST at 18% as it does not fall under exempt categories and is not covered by Section 15(2)(d) of the Act, which pertains to supply of goods or services.

Upon examination, the Authority noted that the sale of land is neither a supply of goods nor services as per Schedule III of the Act. However, the agreement between the corporation and beneficiaries constitutes a supply of service under Schedule II, as it involves agreeing to obligations regarding payments and interest. The interest component in the transaction falls under Section 15(2)(d) of the Act, which includes interest for delayed payment as part of taxable supply. Therefore, the interest on annual instalments for land is deemed part of the taxable supply and subject to GST.

During the virtual hearing, the authorized representative reiterated the applicant's stance. The Authority's discussion focused on the nature of the transaction, distinguishing between the sale of land and the contractual obligations related to payments and interest. Considering the legal provisions and the specific circumstances of the case, the Authority ruled that the interest amount receivable on the annual instalments fixed by the corporation is indeed liable to GST. The ruling was made under the provisions of both the Central Goods and Services Tax Act, 2017, and the Andhra Pradesh Goods and Services Tax Act, 2017.

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