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points while calculating Aggregate Turnover under GST
The amount of Aggregate Turnover is an important criterion
for determining the applicability of many provisions of GST law relating to Registration, Filing of Returns, Audit, etc. The
term aggregate turnover comprises of taxable supplies, exempted supplies, nil rated supplies, non-taxable supplies etc
and hence it is important to
calculate Aggregate Turnover accurately.
APMH has published a detailed blog
on - Analysis of Non-taxable Supply, No Supply,
Exempted Supply, Nil-Rated Supply and Zero-Rated Supply under GST Part II wherein
it was explained that whether certain category of income would be included
while calculating “Aggregate Turnover” as per the Central Goods and Services
Tax Act, 2017 (herein after referred to as “CGST Act”).
Recently the Authority of Advance
Ruling, Karnataka (herein after referred to as “the AAR”) have given a ruling
in the case of Anil Kumar Agarwal (herein
after referred to as “the Applicant) on 04th May, 2020 wherein it
was determined whether certain income would form part of Aggregate Turnover or
It was noted by the AAR that the Applicant had
income/revenue from various different sources which included the following:
1. Partner’s Salary received as partner from
2. Salary received as director from a Private
3. Rental Income on Commercial Property
4. Rental Income on Residential Property
5. Interest Income from partner’s capital, loan
given, advance given, fixed deposit, debentures, post office deposit, National
Savings Certificate, PF account, PPF account, National Pension Scheme.
6. Accumulated Interest (along with principal)
received on closure of PF Account
7. Receipt of maturity proceeds of life insurance
8. Dividend on Shares
9. Capital Gain/Loss on sale of Securities
Analysis of the AAR
The AAR first referenced the definition of Aggregate
Turnover as per Section 2(6) of the CGST Act. The same is as follows:
turnover” means the aggregate value of all taxable supplies (excluding the
value of inward supplies on which tax is payable by a person on reverse charge
basis), exempt supplies, exports of goods or services or both and inter-State
supplies of persons having the same Permanent Account Number, to be computed on
all India basis but excludes central tax, State tax, Union territory tax, integrated
tax and cess.
The AAR then noted that any
income to be included in the aggregate turnover need to be a transaction which
is a “Supply” as per Section 7(1)(a) of CGST Act. A transaction must contain
the following three components to qualify as a Supply:
transaction must involve a supply of goods or services or both such as
sale, transfer, barter, exchange, license, rental, disposal made, or agreed to
transaction must be for a consideration
transaction must be in the course or furtherance of business.
all the above, each of the type of income is analyzed to ascertain their
inclusion in Aggregate Turnover:
Salary received as Director
from Private Limited Company
* If a director is an Executive Director of the
company, then the relation between the Director and Company is of an
employee-employer and the services of the director as an employee would be
neither treated as supply of goods nor as supply of service as per Schedule III
of CGST Act.Therefore
the amount received by the Director as an employee would not be included in
calculation of Aggregate Turnover.
* If a director is a Non-Executive Director of the
Company then the service provided by the Director is a Supply under GST. The GST
liability will have to be paid by the Company under Reverse Charge Mechanism as
per Section 9(3) of CGST Act read with entry no. 6 of Notification no.
13/2017-CT(R) dtd 28/06/2017.
amount received by a director in his capacity as a non-executive director is to
be included by him while calculating the Aggregate Turnover.
Amount received as partner from
The income can be categorized
1. If a
person is a working partner and getting salary, then the said same is neither
Supply of Goods nor Supply of Services in terms of Clause 1 of Schedule III of CGST
2. If a
person is in receipt of an amount towards his share of profit from the
partnership firm, then the same is nothing but an application of money.
in both of the aforementioned cases, the transaction is not a Supply as per CGST
Act and hence will not be included in calculation of Aggregate Turnover.
understand the above ruling made by the AAR we have to first understand the
meaning of “Application of Money
has been excluded from the definition of “Goods” as well as “Services” as per
Section 2(52) and 2(102) of CGST Act. Therefore a transaction in money is not a
transaction in any Goods or Services and thus is not a Supply under GST.
payment made towards Share of Profit by Partnership Firm to Partner is a
transaction or application in money and therefore not considered as a Supply
under the CGST Act.
Rental Income on Commercial
As per Clause 2(b) of Schedule
II of CGST Act, renting of Commercial Property is to be treated as a Supply of
Service. Thus if a commercial property is rented out for a consideration in the
course or furtherance of business, the said transaction is a Taxable Supply of
Service as per CGST Act.
the value of such supply is to be included in the calculation of Aggregate
Rental Income on Residential
As earlier established Renting
of Property is a Supply as per CGST Act. However service of renting of
Residential Property for use as residence is exempted from tax under Entry No.12
of Notification No. 12/2017- CT(R) dtd 28/06/2017.
Thus renting of residential
property is a Supply under GST, however the same is exempted from tax if it is
rented out to be used as a residence.
per the definition of Aggregate Turnover, Exempt Supply is to be included while
calculating the same. Hence rental income on Residential Property will be
included in calculation of Aggregate Turnover.
Interest Income from various
The activity of extending
deposits, loans or advances in so far as the consideration is represented by
way of interest or discount is considered as supply of services and is exempted
under Entry 27(a) of Notification No. 12/2017- CT(R) dated 28/06/2017.
Thus the interest earned out of
the loans, deposits or advances is the consideration which is exempted via the
aforementioned Notification entry.
AAR Ruling has held that the activity of
extending the loans/deposits/advances is an exempted service and the actual
amounts of the loans/deposits/advances becomes the value of service and
accordingly, the activity is an Exempted Supply and is to be included while
calculating Aggregate Turnover, which seems to be incorrect.
our view, the activity of extending of loan/deposit/advances is an application
of money not a supply. The interest amount received by the applicant would be
the value of exempted service.
the interest amount would have to be included in the calculation of Aggregate
Turnover and not the amounts of the loans/deposits/advances.
Maturity Proceeds of Life
The AAR Ruling observed that in
a Life Insurance agreement the Insurance Company is the service supplier and
the policy holder is the service recipient. The consideration of the aforesaid
service is in the form of Insurance Premium on which GST is charged by the
completion of the agreement there is no further service provided between the policy holder and the insurance company.
Therefore the maturity proceeds of Life Insurance is not against any supply and
thus not to be included while calculating Aggregate Turnover.
Dividend and Capital Gain/Loss
While adjudicating the issue of inclusion of transaction in
security and receipt of dividend the AAR made the following analysis
* Securities have been excluded from the
definition of “goods” and “services” as per Section 2(52) and 2(102) of CGST
* Therefore the transactions in such Securities by
any person will not amount to Supply as per CGST Act and therefore the amount
is not to be included while calculating Aggregate Turnover
* The income earned in relation to such
transactions; i.e. payment of dividend, capital gain/loss; is nothing but
application of money and therefore not a supply and is also not included
The above points are summarized below for easy
Inclusion in Aggregate
Turnover as per the AAR
Inclusion in Aggregate
Turnover as per APMH
received by Executive Director
received by Non-Executive Director
received by Partner from Partnership firm
of Profit received by Partner from Partnership Firm
Income on Commercial Property
Income on Residential Property
Proceeds of Life Insurance
Gain/Loss on Share of Shares
The AAR has resolved many
concerns regarding inclusion of certain category of income in the definition of
aggregate turnover. However the holding of the activity of extending loans/advances
as the value of supply to be considered for the purposes of calculating
aggregate turnover, is incorrect. The interest earned on extending such
deposits should only be considered while calculating Aggregate Turnover.
CA Sohail Kagalwala
GST Enterprise Audit
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