Bank interest charges qualify as exempt inward supply affecting 80% threshold calculation under GST provisions

The AAR, West Bengal ruled that interest charges by a registered bank constitute inward supply of exempted services under GST. The bank's loan services with interest consideration are exempt from tax under Notification No. 12/2017-Central Tax (Rate). These exempted services from the registered bank must be included in calculating the total inward supply for determining the 80% threshold limit under GST provisions.

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Issues:
1. Whether interest charges by HDFC Bank Ltd should be treated as inward supply from registered suppliers for calculating the threshold of 80%.

Analysis:
The Authority for Advance Ruling in West Bengal addressed the issue raised by an applicant engaged in the construction business of building and selling residential flats under an affordable housing scheme. The applicant sought a ruling on whether interest charges by HDFC Bank Ltd should be considered as an inward supply from registered suppliers for calculating the threshold of 80%. The applicant argued that since HDFC Bank Ltd is a registered vendor and the interest on the loan is an exempted supply, it should be included in the calculation of the 80% threshold. The Revenue did not provide any view on the matter.

The Authority examined the relevant provisions of the Central Goods and Services Tax Act, 2017, and the notifications related to the supply of services for the construction of affordable residential apartments. It was noted that a promoter is required to pay tax on reverse charge basis for certain inward supplies if the threshold of 80% from registered suppliers is not met. The Authority referred to specific notifications regarding the payment of tax on reverse charge basis by a promoter when receiving goods or services from unregistered suppliers.

The Authority further highlighted the FAQs issued by the Tax Research Unit, Department of Revenue, Ministry of Finance, which clarified that inward supplies of exempted goods or services should be included in the value of supplies from unregistered persons when calculating the 80% threshold. Based on these provisions and clarifications, the Authority ruled that the interest charges by HDFC Bank Ltd should be treated as an inward supply from a registered supplier for calculating the threshold of 80%. This decision was grounded on the fact that services by way of extending loans by HDFC Bank to the applicant against interest payments are considered exempted services and should be part of the total inward supply for the threshold calculation.

Therefore, the ruling concluded that the interest charges by HDFC Bank Ltd should indeed be treated as an inward supply from registered suppliers for the purpose of computing the 80% threshold, as HDFC Bank Ltd is a registered company providing exempted services to the applicant.

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