Inclusion of Interest in Turnover for GST Registration: A Detailed Analysis

Goods and Services Tax (GST) is a comprehensive tax that replaced several indirect taxes in India. GST registration is mandatory for businesses with an annual turnover of more than Rs. 20 lakhs (Rs. 10 lakhs for North Eastern and hilly states). However, in recent times, the issue of inclusion of interest in turnover for GST registration has been a topic of debate.

Interest is the amount charged by the government on delayed payment of tax. It is calculated at 18% per annum on the tax amount due. According to Section 2(112) of the CGST Act, 2017, the term "aggregate turnover" includes all taxable supplies, exempt supplies, exports of goods or services, and inter-state supplies of goods or services made by a person having the same PAN.

Since interest is not a supply of goods or services, it is not included in the turnover. However, some experts argue that interest should be included in turnover for GST registration. Here's a detailed analysis of the issue.

Arguments for Inclusion of Interest in Turnover for GST Registration

Those in favor of including interest in turnover for GST registration argue that:

1. Interest is a part of the amount payable by the taxpayer to the government.

2. Section 2(6) of the CGST Act defines "taxable person" as a person who is registered or liable to be registered under the Act. Thus, if a person is liable to pay interest, he should be considered as a taxable person.

3. Interest is a revenue for the government, and including it in turnover would increase its revenue.

Arguments against Inclusion of Interest in Turnover for GST Registration

Those against including interest in turnover for GST registration argue that:

1. Interest is not a supply of goods or services, and hence should not be considered as part of turnover.

2. Section 7 of the CGST Act states that supply includes all forms of supply of goods or services or both made for a consideration. Since interest is not a consideration for any supply, it should not be included in the turnover for GST registration.

3. Inclusion of interest in turnover for GST registration would result in double taxation, as the taxpayer would end up paying tax on the interest amount.

Conclusion

The issue of inclusion of interest in turnover for GST registration is a complex one, with arguments for and against it. However, based on the provisions of the CGST Act, it appears that interest should not be included in turnover for GST registration. Including interest in turnover would result in double taxation and would go against the basic principles of GST.

It is advisable for businesses to consult with their tax advisors or chartered accountants for more clarity on this issue and to avoid any legal repercussions.