Under the GST Regime, assessees are required to obtain registration under the GST Act based on their aggregate turnover. All taxpayers (suppliers of goods and services) are granted a threshold exemption. If the total turnover exceeds this threshold limit, registration under GST is mandatory.
interest on late payments doesn’t have the necessary elements to consider it a supply. Furthermore, the interest on delayed payment is merely the time value of money and not a consideration for any goods or services. Given this, it’s crucial to understand if the interest on late payment of invoices can be assessed as a supply for the GST levy.
As per Section 15(2)(d) of the CGST Act, 2017, the value of supply also includes interest, penalty, and late fees for delayed payment of any consideration for the supply of goods or services or both.
The levy of GST on the amount paid as interest on late payment of invoices is based upon the “test of supply”, i.e., one needs to satisfy whether the transaction is a supply, then only there will be a levy question of GST. Hence, it is apparent that interest received from a customer for late payment of an invoice is liable to GST. The same should also be disclosed in the GST Returns when the supply of goods or services for which such interest was charged.
Concept of Interest Income
Interest income is the amount you earn from various financial products (FDs, PPF, Government Bonds, etc.), accounts, and investments. It can be earned when you lend your money to another entity, deposit your funds with a bank or financial institution, or even invest your money in certain programs. Interest income is usually paid at a set interest rate. In other words, it is generally guaranteed. Another key feature of interest income is that it is most often paid periodically. So you can earn interest monthly, quarterly, semi-annually, or annually.
Is interest income considered for GST Regime?
Interest income was specifically assessed within the framework of exempted services according to Entry 27(a) of notification No. 12/2017 and Entry 28(a) of notification No. 9/2017, which refers to services in the form of providing deposits, loans, or advances in the case of consideration presented in the form of interest. Such services are therefore exempt from paying GST and the individual does not need to charge GST on the activity of providing services by providing deposits, loans, or advances if the consideration is interest.
From the above Notification, we know that interest income has been exempted from the purview of GST and therefore a person who has only interest income by way of giving deposits, loans or borrowings or interest income received from PPF or savings bank account need not register under GST.
What are aggregate turnover and its inclusion?
Under the GST Act, “aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is paid by a person on a reverse charge basis), exempt supplies, exports of goods or services, or both, and interstate supplies of the same by Permanent Account Number to be calculated for All India but exclusive of Central Tax, State Tax, Union Territory Tax, Integrated Tax, and Cess.
The aggregate turnover calculated for the entire financial year from April of the year to March of the following year is called the annual aggregate turnover. In other words, it is the total turnover calculated at the PAN level (all GSTINs combined) which is the sum of the following:
- Taxable sales value
- Exempt sale value
- Export of goods and services
- Interstate supplies by a company to a sister concern under the same PAN or interstate transfer of shares or supplies between different persons under the same PAN.
However, the above amount does not include tax components like Central Tax, State Tax, Union Territory Tax, Integrated Tax, and Cess. Furthermore, the taxable value does not include those purchases where a person is obliged to pay tax as part of the reverse charge. Note that sales that are subject to the reverse charge must continue to form part of the taxable transactions in the aggregate turnover.
Importance of turnover in the State
State turnover differs from the definition of aggregate turnover. It refers to the aggregate value of all taxable and non-taxable supplies, including exempt supplies and exports of goods and/or services made within the state by a taxable person and interstate supplies of goods and/or services made from a state by a specified taxable person without taxes, if they are charged under the CGST Act, SGST Act, and IGST Act, as the case may be.
Test to determine the taxable Income
GST ‘supply’, as defined in section 7 of the CGST Act, 2017 is to be treated as a chargeable supply for charging GST. There is an obligation to pay tax at the very moment of delivery of goods or services.
Thus, determining whether a transaction falls within the meaning of supply or not is important for deciding the applicability of GST. Accordingly, supply includes sale, transfer, exchange, barter, license, hire, lease, and disposal.
If a person carries out any of these transactions in the course of or furtherance of a business for consideration, it will be treated as a supply under GST. The following tests are necessary to fall under the category of taxable:
- The supply is made for consideration and
- The supply is made as part of business support.
Notification No. 12/2017-Central Tax (Rate)
Services where Central Tax on Intra-State supply and Integrated Tax on Inter-state supply are exempted
Exemption of supply of services under the CGST Act G.S.R 691(E).- In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), when the Central Government is satisfied that it is necessary for the public interest to do so on the recommendation of the GST Council, hereby exempts from tax the domestic supply of services of the description as specified from so much of the Central Tax as is levied thereon under sub-section (1) of section 9 of the said Act, as much exceeds the said tax calculated according to the rate specified in the corresponding item in the table, as lists the services exempted from payment of central tax on domestic supplies and integrated taxes on interstate supplies.
Under notification No. 9/2017- Integrated Tax Rate, where the central government is satisfied that the necessity of public interest exempts inter-state supply of services. Entry 27(a) of notification No. 12/2017 and Entry 28(a) of notification No. 9/2017 refer to services in the form of providing deposits, credits, or loans if the consideration is in the form of interest. Interest income services are subject to the Notice above. Therefore, such services are exempt from paying GST and the individual does not need to charge GST on the activity of providing services by providing deposits, loans, or advances if the consideration is interest.
FAQs
Is GST applicable on interest income?
Generally, GST is not applicable on interest income. Interest income is considered a financial service, and financial services are typically exempt from GST.
Are there any exceptions to the exemption of GST on interest income?
In some cases, specific financial services may be subject to GST. It’s essential to check the specific regulations in your jurisdiction to determine whether any exceptions apply.
What about interest income from savings accounts and fixed deposits?
Interest income earned on savings accounts and fixed deposits is typically exempt from GST as they fall under the category of financial services.
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