RCM on notional loan processing fees

[RS SIMHA]

We have External Commercial Borrowings from the Overseas Parent Company. The question is do we need to pay GST under RCM on a notional loan processing fees ?

[Rajagopalan Ranganathan]

Sir,

Since notional loan processing fees are in the nature of administrative fees and can be distinguished from interest payable such fees are liable to GST. Since you are making payment of such fees to your Overseas Parent Company you have to pay GST under RCM. Since the credit of the tax paid under RCM, there is no financial loss to the person who pays the tax under RCM.

[Amit Agrawal]

Liability to pay gst comes into picture only when there is supply. And such liability stays even if there is no consideration for such supply between related parties.

However, I feel that one need not presume that there was any supply (in form of processing of loan application) simply because parent Co. has given loan to Indian subsidiary.

Paying taxes on 'market rate' etc. (say, at notional value) between related party traction where there is no consideration involved, is not equal to presuming 'supply' took place on notional basis between related parties.

Services provided by parent Co. in subject matter cannot be equated to 'services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders'. In any case, there is no law / rule that banking company, or a financial institution, or a non-banking financial company must charge some 'loan processing fee' while giving any loan to its customers.

Hence & under my given understanding of subject situation, there is no liability to pay gst under RCM basis by the Indian subsidiary on 'notional loan processing fees'.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

AI Summary

Reverse charge on notional loan processing fees may arise where administrative services are supplied by an overseas parent. Whether GST under reverse charge applies to a notional loan processing fee from an overseas parent is debated. One view treats such fees as administrative services distinct from interest and taxable under reverse charge with input tax credit available. The opposing view contends that absent a demonstrable supply-mere provision of a loan by the parent-there is no basis to impute a notional processing service and therefore no RCM liability for the subsidiary.