The Government of Rajasthan on July 09, 2024, issued the Clarification regarding taxability of the transaction of providing loan by an overseas affiliate to its Indian affiliate or by a person to a related person.
On the issue whether there is any taxable supply involved in the activity of providing loans by an overseas affiliate to its Indian affiliate or between related persons in India, where the consideration is only by way of interest or discount and does not involve any processing fee/ administrative charges/ loan granting charges, etc, it has been clarified that supply of services of granting loans/ credit/ advances, in so far as the consideration is represented by way of interest or discount, is fully exempt under GST.
Further, in cases of loans provided between related persons, the activity of “processing” such loan may not be required, and further no administrative cost per se be incurred in granting such a loan. Taking this into consideration, it is clarified that the concept of deemed supply of services between related persons as per Section 7(1)(c) of the CGST Act read with Entry 2 and 4 of Schedule I of CGST Act cannot be applied in such cases.
However, in cases where any fees in the nature of processing fees/ administrative charges/ service fees/ loan granting charges, etc. are charged, over and above the interest or discount then, the same will be treated as consideration for supply of services of processing/ facilitating/ administering of the loan, which will be liable to GST.
This clarification is given to ensure uniformity in the implementation of the provisions of law across the field formations.
