Clarification on Taxability of Loans between Related Entities

Trade and industry have sought clarity on whether loans granted by an overseas affiliate to an Indian affiliate or by a person to a related person are subject to GST when the only consideration is interest or discounts. The GST Board has clarified that providing loans between related persons is considered a taxable supply under GST, as per Section 7 of the CGST Act.

However, loans where the only consideration is interest or discount are exempt from GST under Notification No. 12/2017-Central Tax (Rate). Processing or administrative charges related to these loans, if any, are taxable. This is because such fees are charged to cover administrative costs, which are subject to GST.

In summary, while the loan itself is exempt from GST if only interest or discount is involved, any