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TMI BlogClarification regarding taxability of the transaction of providing loan by an overseas affiliate to its Indian affiliate or by a person to a related person- reg.X X X X Extracts X X X X X X X X Extracts X X X X ..... rseas affiliate to its Indian affiliate or by a person to a related person- reg. Representations have been received from trade and industry seeking clarity on whether there is any supply involved in the transaction of granting of loan by a person to a related person or by an overseas affiliate to its Indian entity, where the consideration being paid is only by way of interest or discount, and whether any GST is applicable on the same. 2. In order to clarify the issue and to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred by section 168 (1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as CGST Act ), hereby clarifies the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt under GST. 3. It is mentioned that overseas affiliates or domestic related persons are generally charging no consideration in the form of processing fee/ service fee, other than the consideration by way of interest or discount on the loan amount. Doubts are being raised regarding the taxability of the services of processing/ administering/ facilitating the loan in such cases, by deeming the same as supply as per clause (c) of sub-section (1) of section 7 of the CGST Act , read with S. No. 2 and S. No. 4 of Schedule I of CGST Act . The processing fee/ service fee is generally a one-time charge that lenders levy on applicants when they apply for a loan. This fee is generally non-refundable and is used to cover the administrative cost of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity is extending a loan to a related entity, it may not require to follow such processes as are followed by an independent lender. For example, it may not need to go through the same process of information gathering about the borrower s business, his financial standing and credibility and other details, as the required information may already be readily available within the group, or between related persons. The lender may not also take any collateral from the borrower. Accordingly, in case of loans provided between related parties, there may not be the activity of processing the loan, and no administrative cost may be involved in granting such a loan. Therefore, it may not be desirable to place the services being provided for processin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and above the amount charged by way of interest or discount, the same may be considered to be the consideration for the supply of services of processing/ facilitating/ administering of the loan, which will be liable to GST as supply of services by the lender to the related person availing the loan. 3. It is requested that suitable trade notices may be issued to publicize the contents of this Circular. 4. Difficulties, if any, in implementing this Circular may please be brought to the notice of the Board. Hindi version would follow. (Sanjay Mangal) Principal Commissioner (GST) - Circular - Trade Notice - Public Notice - Instructions - Office orders Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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