Related Party Trnasactions

[Kaustubh Karandikar]

XYZ(Proprietor) received Interest free loan from PQR (HUF). Both XYZ and PQR are related. Will it have any GST implications? Loan being given without charging any interest and XYZ and PQR being related, will it not amount to service provided by PQR to XYZ and for related person even without consideration, GST is required to be paid and in that case, whether PQR liable to pay GST?

[Spudarjunan S]

Sir,

In terms of Sl.no-27 of notification no.12/2017 CT(R) dated 28.06.2017 - Services by way of- (a) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services) have been Exempted, Subsequently even though interest free loan is provided to related parties fall under Schedule I and forms to be a supply, still the same is exempted via notification no. 12/2017 CT(R) issued under section 11 of CGST Act, 2017.

The interest free loan provided by PQR tantamounts to "Exempted supply" and there is no requirement of reversal of common ITC under rule 42 or 43 in virtue of explanation provided under Rule 43 of CGST Rules 2017.

AI Summary

Related party interest free loan treated as supply but exempt from GST, with no reversal of input tax credit. An interest free loan between related persons is treated as a supply under Schedule I but is classified as an exempt supply under the stated GST exemption notification; accordingly, GST is not attracted and there is no requirement to reverse common input tax credit under the input tax credit reversal rules in light of the explanation provided.