GST on Loan Interest by Indian Subsidiary to Foreign Holding Company

As an Indian subsidiary of a foreign holding company, the Goods and Services Tax (GST) on loan interest can be a complex issue. In this article, we will explore the details of GST on loan interest by Indian subsidiary to foreign holding company.

The Basics of GST

GST is a tax that is levied on the supply of goods and services in India. It is a destination-based tax, which means that it is levied on the final consumer of the goods or services. GST is a comprehensive tax that has replaced various indirect taxes such as VAT, excise duty, service tax, and others.

Loan Interest and GST

When an Indian subsidiary borrows money from a foreign holding company, it is required to pay interest on the loan. The question that arises is whether GST is applicable on the loan interest paid by the Indian subsidiary to the foreign holding company.

As per the GST regulations, interest on loans is not considered as a supply of goods or services. Therefore, GST is not applicable on the loan interest paid by the Indian subsidiary to the foreign holding company.

Relevance of Place of Supply

The place of supply is an important factor in determining the applicability of GST. In case of services, the place of supply is determined based on various factors such as the location of the supplier, the location of the recipient, and the place where the services are actually performed.

In case of the loan interest paid by the Indian subsidiary to the foreign holding company, the place of supply is the location of the recipient, which is the foreign holding company. As per the GST regulations, the place of supply of services to a non-taxable person located outside India is outside India. Therefore, GST is not applicable on the loan interest paid by the Indian subsidiary to the foreign holding company.

Impact on Input Tax Credit

Input tax credit is a mechanism that allows businesses to claim credit for the GST paid on the inputs used in the production of goods or services. In case of the loan interest paid by the Indian subsidiary to the foreign holding company, since GST is not applicable, there is no impact on the input tax credit.

Conclusion

In conclusion, GST is not applicable on the loan interest paid by an Indian subsidiary to a foreign holding company. The place of supply is the location of the recipient, which is the foreign holding company, and as per the GST regulations, the place of supply of services to a non-taxable person located outside India is outside India. Therefore, there is no impact on the input tax credit as well.