LOAN TAKEN FROM SUBSIDIARY COMPANY. RCM IMPLICATIONS

[Sadanand Bulbule]

Loan taken from subsidiary company. GST Implications.

1.It is prevailing practice the, the holding company gives loan to its subsidiary company which is usually identified as corporate loan. Under the GST Act, the holding and its subsidiary company are related persons as per the explanation provided in section 15. This corporate loan is given with or without any nominal interest.

2. The services are defined under the GST Act as below:

Section 2(102) “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;

3. Further, I rely upon the exemption Notification No.12/2017 -Central Tax (Rate) dated 28th June 2017 in serial No. 27(a) as -

“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 services);

(b) ……………………………………………………………………..”

The above exemption notification clearly speaks that, extending loan with a consideration by way of interest is exempted service.

4. In my considered opinion two facts emerge here: If the loan is received from the holding company without interest [or consideration in the form of interest], then it is outside the ambit of “scope of supply” under Section 7 of the Act. Moving little further, in case the loan is taken with interest, even then such services conclusively stand exempted services in terms of Notification No. 12/2017 -Central Tax (Rate) dated 28th June 2017 vide serial No. 27(a).

5. Despite this legal backdrop, some adjudicating authorities are pressing to pay GST under Section 9[4] in terms of Notification No.13/2017- Central Tax ( Rate) dated 28/06/2017 vide I Entry No. 6 which reads as under:

“Services supplied by a director of a company or a body corporate to the said company or the body corporate”.

6. So comments from the experts are solicited.

AI Summary

Debate on GST for Loans from Subsidiaries: Not a Supply of Services, Interest-bearing Exempt, RCM Not Applicable. A discussion on the Goods and Services Tax (GST) implications of loans taken from a subsidiary company, focusing on whether such loans constitute a supply of services and are subject to GST. The consensus among participants is that loans, whether interest-bearing or not, do not fall under the 'scope of supply' as defined by the GST Act. Interest-bearing loans are considered exempt services per Notification No. 12/2017. Some authorities, however, argue for GST under reverse charge mechanism (RCM) per Notification No. 13/2017, but participants disagree, emphasizing that loans are not provided by directors in their capacity, hence not subject to RCM. The discussion highlights the importance of understanding related party transactions and the nuances of GST law.