Interest on Partner's Capital under GST Exempt Supply?

[Hithik]

Interest paid by firm to its partners would be covered under defination of supply and so under aggregate T.O.?..pls guide or any relevant judgement for this

[KALLESHAMURTHY MURTHY K.N.]

Sir,

Please refer to Issue ID: 115497 on this platform.

[Pinnacle Tax Advisor]

interest paid by firm to its partner is treated as interest earned on advance or on deposit. Interest is exempt from GST under Notification 12/2017. Aggregate turnover includes exempt supplies as well. Hence, interest income will be considered while calculating aggregate turnover under GST

[Shilpi Jain]

What is the purpose of this query? Are you checking whether the aggregate turnover exceeds the registration limit?

Is there any other business/professional income that the partner is getting other than remuneration from the firm (sch-III item)?

[Hithik]

Yes, the query is with respect to Agg TO for registration purpose and for the purpose of nature of supply as taxable or exempt..

Unregistered person is in receipt of rents 15 lakhs, Salaries 10 lakhs (Sch III) and Interest on Capital 12 lakhs (firm, authorised by the deed which states - "Interest shall be payable to the partners on their capital...")

Whether interest constitute a 'separate consideration charged' for the use of money to qualify as a service as defined? would it be then includable in 'Aggregate Turnover' for determining the GST registration threshold?

Whether such interest on capital constitutes a 'supply' taxable or exempt

defination of 'services' to include:

"...activities relating to the use of money or its conversion by cash or any other mode, from one form, currency, or denomination to another for which a separate consideration is charged."

If the Homogeneous Antecedents Doctrine is applied to read the qualifier 'for which a separate consideration is charged', then Whether interest constitute a 'separate consideration charged' for the use of money to qualify as a service as defined?

on one view, where the firm uses the partner's capital, and the deed provides for a interest on such use. The consideration is separately identifiable and charged., however other view can be Interest on capital is not consideration for a distinct service but is in the nature of an appropriation of profit or compensation for deploying one's own money in one's own firm., Notional interest on proprietary capital would appear to be outside the scope of GST. but whether the same logic extends, where the partners are contributing capital in firm.

Notification No. 12/2017-CT(R), exempts: "Services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount."

whether a partner's capital contribution falls within the scope of 'deposits, loans or advances.'? would the scope of loans/ deposits include capital contribution, as capital is not extended - it is invested. and is also not repayable on demand or pre-agreed installments.

[Hithik]

Please guide..., let me know if any relevant case law or judgement with respect to this.

AI Summary

GST treatment of partner capital interest turns on supply characterization, exemption as interest, and inclusion in aggregate turnover. Whether interest paid by a firm to its partners on capital contributed under the partnership deed constitutes a supply or an exempt service for GST purposes, and whether such interest is includable in aggregate turnover for registration threshold computation. The discussion considers whether the interest is consideration for use of money or an appropriation of profit, and notes the view that it may be treated as interest on advance or deposit and therefore exempt, while still being included in aggregate turnover as an exempt supply.