TaxTMI 
TaxTMI 
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.
GST on interest income on loan
06 Aug 2023 
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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. (AI Summary)
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. (AI Summary)