GST on interest income on loan

[Kaustubh Karandikar]

XYZ Pvt. Ltd. and PQR Pvt. Ltd. are not related. XYZ had given loan to PQR and charging interest on the same. In my opinion as per entry no. 27 of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 services by way of 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) are exempt. If we paid interest on loan or earned some interest income on loans or deposits, then that interest is exempt. Therefore XYZ is not required to pay GST on the interest income. However, will be required to proportionately reverse the ITC on the common services. Views of the experts please.

[KASTURI SETHI]

Dear Sir,

Pl. read detailed replies against Issue ID 114819 dated 2.4.19.

[Padmanathan KV]

Common credit reversal under rule 42 and 43 is not required as such interest income will be excluded from the aggregate value of exempt supply.

Pls see Explanation 1 to Rule 43:-

Explanation 1:-For the purposes of rule 42 and this rule, it is hereby clarified that the aggregate value of exempt supplies shall exclude:-

(b) the value of services by way of accepting deposits, extending loans or advances in so far as the consideration is represented by way of interest or discount, except in case of a banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances; and

[Amit Agrawal]

I concur with the above views of Shri Padmanathan Ji.

[Ganeshan Kalyani]

Sri Kasturi Sir's reply in the issue id cited is very clear. Only when an activity is termed as a supply it can be further assessed as regard it is taxable or exempt or non Gst supply .

[Kaustubh Karandikar]

Thank all the experts for your guidance.

AI Summary

GST exemption on interest means loan interest is not subject to GST and generally avoids ITC reversal for non-financial lenders.
Interest on loans and advances is exempt when the consideration is interest or discount; such interest income is excluded from the aggregate value of exempt supplies for purposes of ITC reversal, so a non-financial lender generally need not pay GST on interest or reverse common ITC. A banking or financial institution including NBFCs is excluded from this exclusion and may attract different GST/ITC treatment.