Is GST leviable on Notional Interest on security deposit of Rent?

As per the rental agreement between the landlord and the tenant, the tenant is required to pay a certain amount of security deposit, which serves as a safeguard against any potential damages or unpaid rent. The security deposit is usually returned to the tenant at the end of the lease term.

However, one of the questions that often arises regarding security deposits is whether GST is applicable on notional interest earned from the security deposit.

According to the GST law, any amount paid as rent is considered to be a supply of service and is subject to GST. This includes the security deposit paid by the tenant to the landlord.

As per the GST Act, any interest earned from the security deposit is considered to be a separate supply of service and is also subject to GST. However, the notional interest earned on the security deposit is not considered to be an actual interest earned and is therefore not subject to GST.

This means that if the landlord earns actual interest from the security deposit, then GST will be levied on the interest amount. However, if the landlord does not earn any interest and only earns notional interest on the security deposit, then GST will not be levied on the notional interest amount.

It is important to note that the notional interest earned from the security deposit is not considered as a separate supply of service and is only a notional amount. Therefore, GST will not be applicable on this notional amount.

However, it is important to maintain proper records of the security deposit and any actual interest earned on it, as this will be considered as a part of the landlord’s income and will be subject to income tax.

Conclusion

Therefore, it can be concluded that GST is not applicable on notional interest earned from the security deposit of rent as it is not considered as an actual interest earned and is only a notional amount.