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

Related-party loans: interest-free advances are not supplies and interest-bearing loans are exempt from GST, RCM not triggered.
Loans from a holding company to its subsidiary without interest do not constitute a taxable supply under Section 7, and loans with interest qualify as exempt financial services to the extent the consideration is interest or discount; the reverse charge entry for services by a director is inapplicable where the lender is the holding company and not a director in his personal capacity, although concessional interest between related parties may raise transfer pricing or benefit-in-kind scrutiny.